24 January 2024
Are post sale discounts/incentives received through financial credit notes for prompt payment, target based discounts etc taxable under the hands of dealers who receive them?
Can it be treated as support service for enhancing the sales of the supplier and can the discount or incentive received be treated as consideration for the said support service?
The types of discounts or incentives are cash discounts, target based discounts, discounts for prompt payments etc. I have a view that these are not liable to be taxed at the hands of the recipient of the discount. However, if gst is being demanded on the said amounts on the grounds that
As per Section 2(17) "business" includes - (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
As per Section 2 (102) of the CGST Act,2017 "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; As per Section 2(31) of CGST Act, 2017 "consideration" in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
In this case, these incentives are treated as consideration from suppliers for enhancing the volume of sales in the furtherance of their business. Such activity/transaction effected in the course or furtherance of business is a supply of service under Section 7 of the CGST Act. The nature of the above activity is classifiable under support services related to promotion of trading by receiving payment as an inducement for supply of goods in the course or furtherance of their business. As per Entry No. 453 of the Annexure to the Notification No. 11/2017 CT (Rate) dated 28.06.2017 the services is classified under 998599 as ‘other support services nowhere else classified’ and attracts 18% of GST.
Is this acceptable? What are strong grounds to clearly object this demand?
07 July 2024
The taxation of post-sale discounts and incentives under GST can be complex and depends on various factors. Let's break down the key considerations and address your query:
### Nature of Discounts and Incentives
Post-sale discounts and incentives such as cash discounts, target-based discounts, and discounts for prompt payments are commonly offered by suppliers to their dealers or customers. These are typically provided to encourage sales and are contingent upon certain conditions being met (e.g., achieving sales targets, making prompt payments).
### GST Implications
1. **Consideration for Supply**: Under GST, consideration includes any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of the supply of goods or services. This means that if discounts or incentives are directly linked to the supply of goods or services, they can be considered as consideration for such supply.
2. **Supply of Services**: If the discounts or incentives are seen as consideration for a service provided by the dealer (such as promotional support services), they could potentially be classified as a supply of service under GST.
3. **Taxability under GST**: - **Discounts as Reduction in Transaction Value**: Generally, discounts that are provided after the supply has been made (post-sale discounts) and are duly recorded in the books of accounts reduce the transaction value of the supply. Accordingly, GST would be levied on the reduced value, reflecting the actual consideration received.
- **Incentives as Consideration for Services**: If incentives are considered as consideration for specific services provided by the dealer (such as promotion or sales support services), GST could apply on the value of these incentives, treating them as consideration for the service provided.
### Grounds for Objection
To object to the demand for GST on these discounts and incentives, consider the following grounds:
- **Reduction in Transaction Value**: Argue that post-sale discounts are provided after the transaction and are reflected as a reduction in the transaction value of the supply. GST should be levied on the net amount after deducting the discount.
- **Nature of Incentives**: If incentives are merely discounts or rebates provided to dealers without any specific service being provided in return, they may not qualify as consideration for a separate supply of service under GST.
- **Industry Practice**: Show industry practices where such discounts and incentives are treated as reductions in the transaction value rather than separate taxable supplies.
### Steps to Take
1. **Review Documentation**: Ensure that all discounts and incentives are properly documented and recorded in your books of accounts.
2. **Consultation**: Seek advice from a GST consultant or tax expert who can review your specific transactions and provide guidance based on the latest GST regulations and case law.
3. **Object in Writing**: If you receive a demand notice for GST on these incentives, prepare a detailed response outlining your objections based on the above grounds. Provide supporting documentation where possible.
4. **Legal Advice**: If the issue escalates, consider seeking legal advice to determine the best course of action, including potential appeals or representations to the GST authorities.
By clearly outlining how these discounts and incentives are accounted for and arguing that they do not constitute separate taxable supplies under GST, you can build a strong case to object to the demand for GST on these amounts.
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