Amount received as Reimbursement/ Discount/ Rebate from Principal Company to be taxable under GST

The Kerala Appellate Authority of Advance Ruling has ruled that Santhosh Distributors Kottayam is liable to pay GST on amounts received as reimbursement for discounts or rebates from the principal company, Castrol India Ltd. This reimbursement is considered an addition to the consideration payable by customers. While the appellant must pay GST on these reimbursements, they are not required to reverse Input Tax Credit related to commercial credit notes issued by the principal company.

In M/s. Santhosh Distributors Kottayam [Order No. AAR/10/20 dated March 01, 2021], M/s. Santhosh Distributors Kottayam ("the Appellant") has sought clarification on

• Whether there lies any Goods and Services Tax ("GST") on the discount provided by Principal Company M/s Castrol India Ltd. ("the Principal Company") to its dealers through the Appellant.
• Whether the amount shown in the commercial credit note issued by Appellant attracts proportionate reversal of Input Tax Credit ("ITC").
• Whether there lies any tax liability on Appellant for the amount received as reimbursement of discount by Principal Company.

The Appellant aggrieved by the decision of the Hon'ble Kerala Authority of Advance Ruling ("KAAR") dated September 16, 2019 which held the applicant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount/ rebate from the principal company has filed the current application before the Appellate Authority.

The Hon'ble Kerala Appellate Authority of Advance Ruling ("KAAAR") has held that additional discount reimbursed by the Principal Company is liable to be added to the consideration payable by the customers or dealers to the Appellant and  appellant is liable to pay GST at the applicable rate.

Further noted that the Principal Company is not eligible to reduce their original tax liability because it is issuing commercial credit notes. It is for this reason, the Appellant cannot be made liable to reverse the ITC which is attributed to Commercial Credit Notes issued to the Appellant.

Added, that the Appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount or rebate from the Principal Company.