2024 (7) TMI 1344 - AAR - GST

Levy of GST - supply of service or not - differential dealer margin provided by the petroleum companies to its retail dealers - rate of GST - If it is taxable, then what is the justification for bringing the same under the purview of GST? - HELD THAT - The amount paid as differential dealer margin is in the nature of a consideration in return of the applicant agreeing to run the dealership despite low sales volume. This amount is therefore in the nature of a consideration received for agreeing to the obligation to refrain from an act, and squarely falls under clause (e) of Sl No. 5 of Schedule II of the CGST Act, 2017 and hence taxable to GST. Hence, the first reason cited by the applicant for nonpayment of tax is not valid, Further, in view of the above, Circular 29/2019 (F 17(134) AACT/GST/20I 7/4596 dtd 28-06-2019 cannot be cited as a reason for non-payment tax by the applicant. Section 15 of the Act deals with the calculation of the value of taxable supply and sub-section 3 deals with taxability of discount given on that value of taxable supply. In the instant case, the sale of petrol/diesel is not the supply under section 15 (3) as interpreted by the applicant. The taxable supply under discussion in the present matter is agreeing to the obligation to refrain from an act , for which a differential dealer margin is given by HPCL to the applicant. Though the consideration for this supply is linked to the sales volume of petrol, it is not a discount given on the supply of petrol. Hence, section 15 (3) of the Act is not applicable in the instant case. Further, in view of the above, GST Circular 29/2019 (F 17(134) AACT/GST/2017/4596 dtd 28-06-2019 cannot be cited as a reason for non-payment tax by the applicant. Rate of GST - HELD THAT - There is no dispute that the applicant s supply of petrol/diesel to end customer is not taxable to GST. However, the supply in the present case is that of the service of agreeing to the obligation to refrain from an act. As per the Annexure Scheme of Classification of Services annexed to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended from time to time, the service of Agreeing to refrain from doing an act is classified under Section 9, Heading 9997, Service Code (Tariff) 999793. As per SI. No. 35 of the aforementioned notification, the same is taxable 18%

Summary

Issues Involved:
1. Whether the "differential dealer margin" provided by petroleum companies to retail dealers is taxable under GST as a supply of service?

Analysis:
The applicant argued that the "differential dealer margin" is not a consideration for agreeing to do an act and hence not taxable under GST. However, the Authority observed that the margin is a consideration for refraining from closing down the dealership due to low sales volume, falling under the definition of supply of service. The margin is linked to sales volume and is given based on an agreement, making it taxable under GST.

The applicant also contended that the margin is an incentive provided after the supply has been made, and hence not subject to GST. However, the Authority clarified that the margin is a consideration for agreeing to refrain from an act, not a discount on the supply of petrol. Therefore, the provisions of Section 15(3) regarding taxability of discounts do not apply in this case.

Regarding the argument that petroleum products are not taxable under GST, the Authority differentiated between the supply of petrol/diesel and the service of agreeing to refrain from an act, which is taxable under GST. The service falls under Section 9, Heading 9997, and is subject to an 18% tax rate.

In conclusion, the Authority ruled that the "differential dealer margin" provided by the petroleum company is taxable under GST as a supply of service at an 18% rate (CGST @ 9% and KSGST @ 9%).

This thorough analysis considered the applicant's contentions, relevant legal provisions, and precedents to arrive at a well-reasoned ruling on the taxability of the differential dealer margin under GST.