GST query related to Section 15 (3) of CGST Act, 2017

[DAMINI TALWAR]

In an agreement instead of receiving 20% referral invoice which attracts GST @ 18% to the supplier who is engaged in restaurent services being sale of food and beverages attracting GST@5%. Since the 18% GST paid on this referral fees will become the cost to supplier, is it possible that insetead of apying GST 5% on Rs. 100, the supplier will pay GST on 80, treating 20 as the Trade discount as per the rules and provision Section 15(3) and CBIC circular.

[Raam Srinivasan Swaminathan Kalpathi]

Your query is nebulous. Please elaborate with an example.

[Sanjeev Agarwal]

On the facts presently given, I would take the conservative/litigation-safe view that Rs. 20 referral fee cannot be converted into a Rs. 20 trade discount merely through contractual wording.

If the commercial objective is genuinely to have the restaurant's selling price reduced from Rs. 100 to Rs. 80, the agreement, customer invoice, commercial documentation and accounting should reflect a real discount in the price of the restaurant supply, rather than a Rs. 20 consideration for a separate referral service.

The decisive question is therefore who gives the Rs. 20, to whom, under what contractual obligation, and whether the Rs. 20 is actually a reduction in the consideration for the restaurant supply or consideration for a separate referral service.

If you provide the actual referral agreement/payment flow and invoice structure, I can examine whether it can be legitimately structured within section 15(3) or whether it would fail the substance-over-form / separate-supply test.

[Shilpi Jain]

The tax treatment will depend on the terms of the contract. If you can tweak the contract terms one can see if that's a possibility at all.

AI Summary

Trade discount treatment under GST depends on genuine price reduction, not relabelling referral-service consideration in contracts.
GST valuation treatment of a trade discount depends on whether the payment is a genuine reduction in consideration for the restaurant supply or consideration for a separate referral service. A referral fee cannot be converted into a trade discount merely through contractual wording. Where a genuine price reduction is intended, the agreement, customer invoice, commercial documentation and accounting should consistently reflect that reduction. The payment flow, contractual obligations and nature of the underlying supply remain material to a substance-over-form and separate-supply assessment.