2021 (7) TMI 789 - AAAR - GST

Levy of GST - Valuation - supply of Castrol brand Industrial and automotive lubricants bearing HSN code 2710 - discount provided by M/s. Castrol to their dealers through the appellant - amount received as reimbursement of discount or rebate provided by M/s. Castrol as per written agreement between the Principal and their distributors - reversal of proportionate input tax credit - amount shown in the commercial credit not issued to the appellant by M/s. Castrol - applicant paying tax and availing credit received by them from the Principal Company Castrol or their stockists. Whether the discount provided by M/s. Castrol to their dealers through the appellant attracts any tax under GST? - HELD THAT - Section 15 of the CGST Act states that the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of supply are not related and price is the sale consideration for the supply - the discount on the value of supply can be allowed only if the discount granted is in agreement with the provisions of Section 15(3) of the CGST Act, 2017. First scheme of the discount is the one that is known at or prior to the point of time of supply, where the quantum of discount is indicated/reflected in the invoices and the GST is paid on the discounted amount of transaction value. Another scheme of discount offered is on post sale basis, wherein the amount of discount may be known at the point of supply but may not be quantified; or some discounts may not even be known at the time of supply of goods. In both these post sale discounts, discounts are extended through credit notes. These post sale discounts therefore are subjected to GST at the time of supply - the additional discount reimbursed by M/s. Castrol, is liable to be added to the consideration payable by the customers or dealers to the appellant. The appellant is liable to pay GST at the applicable rate. Whether the amount shown in the commercial credit not issued to the appellant by M/s. Castrol attracts proportionate reversal on Input Tax Credit? - HELD THAT - M/s. Castrol is issuing commercial credit notes, hence are not eligible to reduce their original tax liability. Thereby the appellant will not be liable to reverse the ITC attributable to the commercial credit notes issued to them by M/s. Castrol. Is there any tax liability under GST laws on the appellant for the amount received as reimbursement of discount or rebate provided by M/s. Castrol as per written agreement between the Principal and their distributors? - HELD THAT - The additional discount in the form of reimbursement of discount or rebate, received from M/s. Castrol over and above the invoice value is liable to be added to the consideration payable by the customer to the appellant for the purpose of arriving at the value of supply of the appellant to the customer as per provisions of Section 15 of the CGST/SGST Act. Further, the customer, if registered, would only be eligible to claim ITC of the tax charged by the appellant only to the extent of the tax paid by the said customer to the appellant. In view of second proviso to Section 16(2) of the CGST/SGST Act.

Summary

Issues Involved:
1. Tax liability on discounts provided by the principal company through the distributor.
2. Reversal of Input Tax Credit (ITC) on commercial credit notes.
3. Tax liability on reimbursement of discounts or rebates to the distributor.

Detailed Analysis:

1. Tax liability on discounts provided by the principal company through the distributor:
The appellant sought a ruling on whether the discount provided by the principal company (Castrol) to their dealers through the appellant attracts any tax under GST laws. The Authority for Advance Ruling (AAR) determined that the additional discount given by the supplier (Castrol) through the appellant, which is reimbursed to the appellant, represents consideration paid by the supplier to the distributor for the supply of goods to the customer. Therefore, this additional discount reimbursed by the supplier to the distributor is liable to be added to the consideration payable by the customer to the distributor to arrive at the value of supply under Section 15 of the CGST/SGST Act at the hands of the distributor.

2. Reversal of Input Tax Credit on commercial credit notes:
The appellant questioned whether the amount shown in the commercial credit note issued to the appellant by the principal company attracts proportionate reversal of ITC. The AAR ruled that the supplier of goods issuing the commercial credit note is not eligible to reduce his original tax liability, and hence the recipient (appellant) will not be liable to reverse the ITC attributable to the commercial credit notes received from the supplier.

3. Tax liability on reimbursement of discounts or rebates to the distributor:
The appellant sought clarity on whether there is any tax liability under GST laws on the amount received as reimbursement of discount or rebate provided by the principal company as per a written agreement between the principal and their distributors. The AAR held 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.

Appellate Authority's Findings:

Condonation of Delay:
The appellate authority condoned the delay in filing the appeal, as it was within the permissible limit of 30 days from the last date of filing the appeal.

Legal Provisions:
The value of taxable supply is governed by Section 15 of the CGST/SGST Act. Section 15(3) specifies that the value of supply shall not include any discount given before or at the time of supply if recorded in the invoice or after the supply if it is established in terms of an agreement and linked to relevant invoices, and the ITC attributable to the discount is reversed by the recipient.

Post-Sale Discounts:
The appellate authority observed that post-sale discounts, which are not known or quantified at the time of supply, do not satisfy the conditions of Section 15(3)(b) and hence cannot be excluded from the transaction value. The additional discount given by Castrol to the appellant is considered as consideration for offering a reduced price to augment sales and falls under the definition of "consideration" as specified under Section 2(31) of the CGST/SGST Act.

Commercial Credit Notes:
The commercial credit notes issued by Castrol do not satisfy the conditions prescribed in Section 15(3) of the CGST/SGST Act, and hence the supplier is not eligible to reduce the original tax liability. However, the appellant will be eligible to avail the ITC as per the invoice of the supplier.

Order:
1. The additional discount reimbursed by Castrol is liable to be added to the consideration payable by the customers or dealers to the appellant, and the appellant is liable to pay GST at the applicable rate.
2. The appellant will not be liable to reverse the ITC attributable to the commercial credit notes issued by Castrol.
3. The appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount or rebate from Castrol.

The ruling of the Authority for Advance Ruling, Kerala, dated 16-09-2019, was upheld.