GST on Post Sale Discounts - First Relief by Madras High Court



Quick Summary
The Madras High Court has provided initial relief regarding Goods and Services Tax (GST) on post-sale discounts. The court clarified that Section 15(2)(e) of the GST Act applies only when a portion of the payment for a supply is subsidised, and a discount itself is not a subsidy. Therefore, discounts offered by suppliers or manufacturers generally cannot be included in the 'transaction value' unless they are linked to a subsidy provided by a third party.

The Big Question? Is GST discount a Supply of Services 

1. Channel Discount - From OEM to Wholesaler (WS) through Distributor (DBT)
2. Passback discount - From OEM to distributor / Down supply chain

Madras HC: GST on Post-Sale Discounts - Key Ruling

Madras High Court on Post Sale Discounts

M/s SUPREME PARADISE Vs ASSISTANT COMMISSIONER (ST), NORTH 1 CIRCLE, TIRUPUR [2024-VIL-111-MAD]

1. Section 15(2)(e) of the Act will come into play only when a part of the consideration payable for the supply is subsidised.

2. A discount by itself will not qualify as subsidy

3. A discount offered by a distributor or a supplier or the manufacturer to buyer/recipient simplicitor cannot form part of the "transaction value" unless such a discount is offered on account of the subsidy for such supplies by a third party. In other words, a discount linked to the subsidy alone can form part of the "transaction value"

Our Contention

Channel Discount 

1. It is a 'turnover discount' with the nomenclature of 'incentive'. There is no service rendered at all. The enhanced sale of goods are for own profit of the WS

2. Since discount is routed through the Distributor (DBT), hence there are back to back agreements between OEM-DBT and DBT-WS

3. Linking with invoices may be possible as all 'discounts' or 'incentives' are provided for a said supply within a said timeframe

4. At most it is a 'secondary/post sale' discount which ITC reversal is not required by the recipient

 

Passback Discount 

1. There is no service rendered at all. The enhanced sale of goods are for own profit of the WS
2. Linking with invoices may be possible as all 'discounts' are provided for a said supply within a said timeframe
3. At most it is a 'secondary/post sale' discount which ITC reversal is not required by the recipient

 

MH AAAR - M/s MEK PERIPHERALS INDIA PRIVATE LIMITED

1. Channel Discount - From OEM to WS through DBT is a supply of service by The WS because

a. Agreement is for "incentive" from OEM to WS, for achieving target. Hence it not a trade discount
b. Agreement is for between OEM and WS even though it is routed through the DBT
c. There is no linking with the invoices
d. Therefore it is a supply of 'marketing' and 'technical' service

2. Passback discounts - Post Sale

Post Sale Discount is a supply of Services


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About the Author

DESIGNATED PARTNER

Mr. Vivek Jalan is a FCA, Qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Fiscal Affairs and Taxation Committee of The Bengal Chamber of Commerce and Industry. He is the Convenor on Indirect Taxes of the CII- Economic Affairs and Taxation Committee (ER); He is also a visiting faculty for Indirec ... Read more

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