194 R and GST, Goods and Services Tax - GST

[Sooraj B]

Respected experts ,

My query is with reference to the interplay of Section 194R of the Income Tax Act and GST.

A company pays incentive to its dealers in cash/kind based on the purchases made by the dealers from the company. The company has deducted income tax u/s 194R based on CBDT Circular 12/2022. Will this have any GST implications for the dealers?. The GST Department is likely to send notices to the dealers based on 26AS of the dealers. Are the dealers required to raise invoice for the incentive and charge GST on the amount?. In my opinion , there is no supply being made by the dealers, as the incentive is being given on the basis of purchases made by the dealers from the company and there is no provision of service being made here by the dealers .I understand that there have been decisions under the service tax regime holding that incentive given based on purchases made by dealers does not amount to provision of service by the dealers . Keen to know your views.

In cases where incentive is paid based on sales made by the dealers, would it be treated as a supply of service by the dealer. In such a scenario can the Company avail ITC if a dealer raises an invoice for such incentive and charges GST ? In my opinion, yes, since it is in the course or furtherance of business and not blocked u/s 17(5). And if the incentive is paid in kind, should the company raise a GST invoice on the dealer for the supply of goods given an incentive, as it is in the nature of a barter transaction? Kindly share your views.

Thanks and Regards,

CA Sooraj B

Posts / Replies

[VENU K]

In my opinion there cannot be any liability if an incentive is given without any action or obligation at the dealers end. This was the logic adopted in the , now withdrawn, Circular 105/24/2019 dated 28.06.2019 which were very appropriate . I feel the logic in this circular has still force in GST law.

In case of Principal Commissioner Central Excise vs SOTC Travels Services Private Limited 2023 (7) TMI 439 - SC ORDER relying on Custom, Excise & Service Tax Tribunal judgement of Kafila Hospitality And Travels Pvt Ltd vs Service Tax - 2021 (10) TMI 385 - CESTAT NEW DELHI - Delhi on 17 September, 2021  ​​​​had held that Incentives paid for achieving targets cannot be considered as consideration.

The GST law has its own definition of supply and consideration. If something is not a supply as per the definitions of supply and consideration in GST, it cannot be brought to tax solely on the basis of treatment adopted in the case of another law. At the most it can have evidential value and nothing more than that.

[KALLESHAMURTHY MURTHY]

Dear Sir,

The incentive does not attract Sec. 7 being a supply of goods or services where there is no consideration. ITC cannot be availed even if the tax invoice is raised since it is without warrant and such an act attracts sec. 76 of the CGST Act since the incentive does not mean to the course of furtherance of business.    

Thanking you.

[KASTURI SETHI]

Sh.Sooraj B Ji,

Incentive is at par with discount and hence cannot be treated as consideration. Not taxable. To understand the concept of 'incentive' here is the judgement of Hon'ble Supreme Court.

PRINCIPAL COMMISSIONER OF CENTRAL EXCISE, DELHI-I Versus SOTC TRAVELS SERVICES PVT. LTD. - 2023 (7) TMI 439 - SC ORDER

One cannot pay tax on one's own volition.

Also read case laws relied upon  in the judgement of the Hon'ble Supreme court.

Although the above case law pertains to pre-GST era, yet it is relevant in GST regime.. The rationale behind this aspect is the same.

[Shilpi Jain]

Incentives given will not be a supply and are more in the nature of discount.

There should not be a GST liability in the hands of the dealer.

However, one thing that the department can do is try to restrict the credit in the hands of the person giving the incentive in case it is given in the form of goods - by treating it as goods given away as a gift.

Though, if there is an obligation on the basis of which the incentive is given, in my  view this cannot be regarded as a goods given away free. Credit should be eligible.

[Shilpi Jain]

Also note that in case any services are given by way of incentives, ITC restriction should not apply even if given away free, since there is no blocking of credit for services given away as gift.

[Shilpi Jain]

Pls see if this article of mine is of any relevance to this topic

https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=8835

Credit eligibility on goods given under incentive schemes

[Sooraj B]

Thank you all the experts , for your insightful replies . Really grateful

Regards,

Sooraj