Reimbursement of additional discount to distributor will attract GST, says Kerala AAAR

Kerala’a Appellate Authority for Advance Ruling has upheld that further {discount} reimbursed by an organization to its distributor might be added to the consideration payable by the client to the distributor. This sum will appeal to GST within the arms of the distributor.

Specialists really feel that as there are divergent views on applicability of GST on supplier {discount}, detailed clarification from Finance Ministry is warranted to minimise disputes.

The appellant, Kottayam-based Santhosh Distributors, is an authorised distributor of Castrol, a world firm engaged in industrial and automotive lubricants. The enchantment talked about the distributor is paying the tax due as per bill worth issued by them and availing the enter tax credit score (ITC) proven within the inward invoices acquired by them from the corporate or from stockist.

What the enchantment says

In response to the enchantment, Castrol has two sorts of sellers — regular sellers and workshops and each get provide from distributor just like the appellant. Via its distributor, the corporate provides reductions primarily based on SKU or amount to workshops. Reductions are additionally obtainable for regular sellers by distributor. Whereas the distributor is obliged to move on the {discount}, he’s additionally entitled to obtain them from the corporate along with {discount}/rebate of 4.3 per cent, as talked about within the settlement. Right here the scheme in query is SKU {discount} provided by the corporate in relation to sale by its distributor.

In 2019, he filed an software with the Authority for Advance Ruling (AAR) with three queries — whether or not {discount} offered by the corporate to their sellers by distributor attracts GST, whether or not the quantity proven within the Industrial Credit score notice issued to the distributor by the corporate attracts proportionate reversal of ITC and can the quantity acquired as reimbursement of {discount}/rebate appeal to GST.

What AAR dominated

AAR held that further {discount} given by the provider by the applicant (distributor), which is reimbursed to the applicant, is a particular diminished worth for the client. Therefore, the quantity represents consideration paid for provide of products to the client. Subsequently, “this extra {discount} reimbursed by the provider of products/principal firm to the distributor/applicant is liable to be added to the consideration payable by the client to reach on the worth of provide underneath part 15 of GST regulation by the hands of distributor/applicant.”

Additional, it stated that business credit score is just not eligible for diminished tax legal responsibility. It held that the applicant is liable to pay GST within the quantities acquired as reimbursement of {discount}/rebate from the corporate. Aggrieved by the ruling, the applicant appealed earlier than AAAR. Nevertheless, going by all of the info and arguments, the appellate authority upheld the AAR ruling.

In response to Harpreet Singh, Companion with KPMG, whether or not {discount} given by an organization to their sellers is a part of consideration acquired by sellers from their clients, is a circumstantial query with no straight-jacket reply. The reply would rely upon how the transaction is structured, settlement between the corporate and sellers, documentation and so forth.

“In view of divergent views and resultant various practices being adopted, Authorities might take into account developing with Clarifications on all type of pre/ post-sale reductions and reimbursements. The identical wouldn’t solely guarantee constant strategy, but in addition keep away from unwarranted litigations,” he stated.


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