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TMI Blog2021 (7) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 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 origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST Laws. c. Whether the amount shown in the Commercial Credit not issued to the appellant by the Principal Company attracts proportionate reversal of Input Tax Credit. d. Is there any tax liability under GST laws on the appellant for the amount received as reimbursement of discount or rebate provided by the Principal Company as per written agreement between the Principal Company and their dealers and also an agreement between the principal and distributors. 3. The Authority for Advance Ruling Kerala vide order No. KER 60/2019, dated 16/9/2019 issued ruling as follows :- a. The applicant/distributor is eligible to avail ITC shown in the inward invoice received by him from the supplier of goods/principal company. b. It is established from the statement of the applicant that the prices of the products supplied by the applicant it determined by the supplier/principal company and the applicant has no control on the price of the products. Therefore, it is evident that the additional discount given by the supplier through the applicant, which is reimbursed to the applicant is to offer a special reduced price by the distributor/applicant to the customers and hence the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommended by Castrol. - The Distributor undertakes a submit information to Castrol at such intervals as may be agreed regarding the total benefits which the dealers will be entitled to under the schemes of Castrol. - In consideration of the obligations undertaken by the Distributor pursuant to the Agreement, the Distributor will be entitled to the Distributor s rebate @ 4.3% of the basic price of the Products. For the said purpose, the basic prince at which the product is invoiced to the Distributor by Castrol but does not included any type of discounts, taxes, and the said commission rebates. 5.2 To the best understanding of the Appellant, Castrol has two types of dealers : (a) normal dealers, and (b) workshops, sales to whom are made by Distributors like the Appellant. In relation to workshops, Castrol announces (through its Distributors) different types of discounts, namely : (i) SKU discounts, (ii) quantity-based discount etc., which are service by the Distributors. Castrol also announces various schemes to its normal dealers through its Distributors. The Appellant is entitled to discounts announced by Castrol to appellant s dealers in addition to discount rebate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue a financial credit note. In relation to such credit notes, there is no reduction of the transaction value or of the tax paid sought under Section 15(3)(b) of the CGST Act. The sample copies of the commercial credit note and corresponding supply invoice were submitted by them. 5.4. Further from facts as aforesaid, it is clear that : (a) The Appellant is entitled to receive both prior or post sale discounts, from Castrol against the discounts given by Appellant to appellant s customer/dealers in terms of agreement entered between Castrol and Appellant customers/dealers. Castrol grants post sale discounts to its Distributors in such circumstances where it considers it commercially expedient to do so to increase the volume of its sales. In the ordinary course of trade, Castrol would seek to sell products at predetermined prices. All credit notes which emanate from Castrol in relation to a post-supply discount extended to a distributor are not tax credit notes in relation to which Castrol seeks any reduction of its transaction value or reduction of the GST already discharged on the relevant sale transaction under Section 15(3)(b) of the CGST Act. The amounts transacted u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 15 and Section 34 of the CGST Act read with the Circular No. 92, dated 7 th March 2019. Discount/credit note cannot be construed as consideration as defined under Section 2(31) of CGST Act. Taxability cannot be determined by reading language or concepts alien to the statute into the statute Discount/schemes/rebate is in nature of pure financial credit notes only. 5.6 The detailed submissions of the Appellant on above grounds are as follows, which are without prejudice to each other : a. It is submitted that in the present case, the discount is routed through the distribution chain. It is not a case where the additional benefit is given by the manufacturer to dealers directly by passing the wholesalers/distributors and thus, the additional discount would not merit to be treated as additional consideration in the hands of the distributor. The impugned AAR Ruling has been passed by the Respondent No. 1 based on a misapplication of law. The impugned AAR Ruling, which was passed on 16 th September 2019, particularly has place reliance (although not specifically referred to) on the Circular No. 105/24/2019-GST, dated 28 th June 2019 ( June Circular ) issued by the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax paid by the said customer to the applicant in view of second proviso to Section 16(2) of the CGST/SGST Act. A. 1 b. The said June Circular has since been withdrawn as initio by a Circular No. 112/31/2019-GST, dated 3 rd October, 2019 issued by the Board ( Withdrawal Circular ). A copy of the June Circular and Withdrawal Circular are hereto annexed and marked as Exhibit D. The withdrawal Circular was issued in exercise of its powers conferred by Section 168(1) of the CGST Act with a view to ensure uniformity in the implementation of the provisions of the law across field formations. As a corollary to the settled law that a Circular is binding upon the Revenue. It also follows that a Circular withdrawal is also equally binding on the Revenue. It also follows that a Circular withdrawal is also equally binding on the Revenue. The impugned order which relies on paragraph 4 of the June Circular as the basis of its approach and findings is therefore clearly unsustainable and bad in law. The additions to the assessable value made under the impugned order are therefore without jurisdiction and without the authority of law. The impugned Order is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them. Then alone administrative authorities and tribunals exercising quasi judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudication process. The rule requiring reasons to be given in support of an Order is like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi judicial process and this rule must be observed in its proper spirit and mere presence of compliance with it would not satisfy the requirement of law. f. The Appellant also invites attention to the Apex Court s decision in the case of Assistance Commercial Tax Officer Vs. M/s. Rijhumal jeevandas [2010-TIOL-30-SC-CT], where in it has held as follows : The administrative authority and tribunals are obliged to give reasons, absence whereof could render the Order liable to Judicial Chastise. Thus, It will not be far from absolute principle of law that the Courts should record reasons for its conclusions to enable the appellate or higher Courts to exercise their jurisdiction appropriately and in accordance with law. It is the reasoning alone, that can enable a higher or an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sole consideration. The levy is therefore on the actual consideration, and, does not extend to any notional consideration. Moreover, in terms of Section 15(3) of the CGST Act, discounts (both pre-sale and post-sale) are deductible from the value of the supply, provided certain conditions are met. For post-sale discounts, the provisions envisage the issuance of a credit note within the prescribed time limit by which output tax liability of GST payable on the supply of goods can be reduced. i. On a reading of these provisions, there is a statutory prescription of what should be included in the value, and what is not to be included in the value. On a reading of Section 15(1) and 15(3) of the CGST Act. From the price actually paid or payable, the amount of any discount is required to be excluded from the value of the said supply if the conditions set out in Section 15(3)(a) and 15(3)(b) of the CGST Act are satisfied. Therefore, discount is a concept which by status is intrinsically co-related to the value of the supply. In the present case, therefore, any discount given by the manufacturer to the distributor is intrinsically to-related to the value of the said supply, viz. Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration as defined under Section 2(31) of the CGST Act is to be harmoniously read with the term transaction value and with the provisions of Section 15(1) and 15(3) of the CGST Act, then the term consideration can only refer to payments, which have not already been subjected to GST in an antecedent transaction (in respect of the same goods) as being part of the transaction value and sole consideration of such antecedent transaction. In the present case, the definition of the term consideration under Section 2(31)(a) as applied to Transaction 2, cannot be applied so interpreted as to treat any amount (being the post-supply discounts evidenced by credit notes) which have already been taxed as part of the transaction value in Transaction 1. m. The Impugned Order has been passed in a manner wholly contrary to the principle laid down in the binding decisions of the Hon ble Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Vs. M/s. Motor Industries Co. Ernakulam, [(1983) 2 SCC 108], and of the Hon ble Kerala High Court in Kalpana Lamps and Components Ltd. v. State of Kerala, (2006) 143 STC 666. These decisions spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of goods to its customers at a reduced price but it is based on pre-existing scheme of Castrol. It shall be noted that, had the fact of the case would have been as understood by the Authority for Advance Ruling goods are sold at a lesser price by the Appellant at its own motion), then Appellant is not under commercial compulsion to pass on this credit note to its distributor. The very fact that Castrol launches schemes and provides discounts from time to time to its distributors as per the contract executed between Castrol and Distributor makes the Appellant legally eligible for the above benefits and has the right to procure the goods at the respective price from. Castrol. Thus, due to the above discounts/schemes/rebate etc., the costs of procurement of goods is reduced in the hands of the Appellant and thus, the Appellant is able to supply goods at a lesser/discounted price to its customers. In the present case, it is not the fact that the above discount/schemes/rebate are qua specific buyer/class of buyer of the Appellant and there is no such condition in the schemes/discounts etc. but these are uniform practice in selling products through distributors with full c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position qua taxability under an Indirect Tax levy such as Excise Duty, the authorities would do well to keep in mind legitimate business considerations . In the specific context of discounts and promotions qua sales of goods, the Hon ble Supreme Court has time and again held that such amounts are : (i) an integral part of the transaction of sale itself; and (ii) are to be treated as deductions that are admissible under the relevant statutes, from the sale price o0f the goods. Even if a discount is not an eligible deduction from the sale price/supply price under the relevant tax statute, it will still be in the nature of a discount, and, cannot be recategorized as part price paid for a subsequent transaction. Therefore, insofar as the Impugned Order seeks to recharacterize a discount transaction as part price/part consideration paid for a subsequent supply transaction, without any basis in fact or in law, it has been passed in a manner contrary to the binding law declared by the Hon ble Supreme Court in the decisions cited above. The view taken in the Impugned Order is, therefore, wholly arbitrary and unfounded in law or commerce, and cannot be permitted to sustain. s. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alities of the transactions it examined, but also is contrary to the basic principles underlying Section 34 of the CGST Act. The Appellant refers to Circular bearing No. 92/11/2019-GST, dated 7 March 2019 wherein various doubts related to treatment of sales promotion schemes under GST have been clarified by the Principal Commissioner, GST. In this regard, the Appellant refers to para D or the Circular wherein it has been provided as under : i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s. A supplies 10000 packets of biscuits to M/s. B at ₹ 10/- per packet. After words M/s A re-values it at ₹ 9/- per packet. Subsequently, M/s. A issues credit note to M/s. B for ₹ 1/- per packet. ii. The provisions of sub-section (1) of section 34 of the said Act provides as under : Where one or more tax invoices have been issued for supply of ay goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; - PROVIDED that a deposit, given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies the deposit as consideration for the said supply; The definition states that consideration should be in relation to the supply of goods or services or both. In the present case, the discount/scheme/rebate offered by Castrol to the Appellant is not towards any supply of goods by the Appellant to its customers. The scheme/discounts are first circulated and communicated to the Distributor by Castrol and basis the above schemes etc., the Appellant effects supply of goods its customer at a lesser price. v. The Appellant further submits that if the interpretation canvassed by the AAR us accepted then it will override the provision of Section 15 (valuation) and Section 34 (Credit Note) of the CGST Act, which specifically deals with and provides and acknowledge that credit notes are issued by the Industry/trade. The of the CGST Act then only stipulates the conditions under which credit (note with GST can be issued by a Supplier. Thus, in the present case, it cannot be construed that credit note issued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Distributor undertake that in respect of supplies to be made by it to the Distributor s customers/dealers, it shall not charge prices exceeding the prices recommended by the Company. Rebate : In consideration of the obligation undertaken by the Distributor pursuant to the Agreement the Distributor will be entitled to the Distributor s rebate @ 4.3% of the basic price of the Products. For the said purpose basic price means the price of which the product is invoiced to the Distributor by the Company (including excise levy) but does not include any type if discounts, taxes and said commission/rebates. This rebate shall be deducted from the previous sales invoices itself. The VAT payable on the Distributor s rebate will be borne by the Company. In addition to the rebate the Distributor will be eligible to a quarterly incentive upto 0.5% based on the achievement of performance parameters as set by the Company from time to time. x. The Appellant further submits, the case of preGST regime, wherein the New Delhi CESTAT in the case of Petronet LNG Limited Vs. Principal Commissioner of Service Tax, Delhi-I [Service Tax Appeal No. 52946 of 2016] adjudicated that de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply made by the Appellant to the customers. The Appellant submits that the additional discount passed by Castrol to the Appellant is a purely financial transaction rather than being a new supply by the Appellant. The supply of goods has already been taken place from Castrol to the Appellant, and the above discounts are not linked with the supply of goods by the distributor to its Retailer/customers. The above discounts reduce the consideration payable to Castrol by its Distributors for the supply of goods from Castrol to its distributors. By offering an additional discount to sell the product, there is no additional supply which takes place from the Appellant to Castrol. In this regard, the Appellant submits that the Respondent has no understood the transaction under context correctly. The amount that the Respondent is treating as consideration flowing from Castrol to the Appellant is in the real sese the additional discount provided by Castrol. The said fact has been agreed by the Respondent in the impugned order itself. Equating discounts with consideration goes contrary to the essential of the Indian Contract Act, 1872. Thus, the said discount cannot be either constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harat Automobiles Limited, the Tribunal held that, On the appeal by Revenue on the issue of incentives received by the appellant from the car dealer, we find that the relationship between the appellant and the dealer is on a principal basis. Only because same incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown In the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department and in re Sai Service Station Limited it was held that. In respect of the incentive an account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the end of year when the accounts are made out (at the end of the year) according to the normal trade practice. The Supreme Court has considered an identical rule in Deputy Commissioner of Sales Tax (law) v. Motor Industries Co. MANU/SC/0309/1983 : [1983] 53 STC 48 (SC). The Supreme Court was considering rule 9(1) of the Kerala General Sales Tax Rules, 1963, which corresponds to rule 6(a). The Supreme Court held that ordinarily ay concession shown in the price of goods for any commercial reason would be a trade discount which can legitimately be claimed as a deduction from the turnover under clause (a) of rule 9 of the Kerala General Sales Tax Rules, 1963. It was observed that the fact that the discount was not allowed or the time of sale, but on a later date, at the end of the month, did not make it any the less a trade discount. In our opinion, the principle is the same where the discount is paid at the end of the year as well. Following the said decision of the Supreme Court, we must hold that the Tribunal was right in holding that the amount paid to the stockists as discount at the end of the year, on making out of the account to the normal trade practice, was a permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have meticulously examined the facts of the case, the relevant Advance Ruling passed by the Advance Ruling authority of Kerala state, the appeal memorandum and the grounds for appeal filed by the appellant before this authority and those submitted during the course of personal hearings, and other evidences on record. The issue for determination before this authority is listed as follows :- 1. Whether the discount provided by M/s. Castrol to their dealers through the appellant attracts any tax under GST? 2. Whether the amount shown in the commercial credit not issued to the appellant by M/s. Castrol attracts proportionate reversal on Input Tax Credit? 3. 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? 8. Before we examine the issues on merit, it is noticed that the appellant has filed the instant appeal with delay of about one month from the due date as the Advance Ruling order was communicated to the Appellant on 4 th Oct 2019 and the last date for filing of appeal was 3 rd Nov. 2019, whereas the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) The value of the supply shall not include any discount which is given- (a) before or at the time of the supply if such discount has ben duly recorded in the invoices issued in respect of such supply; and (b) after the supply has been effected, if- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply; (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed. Explanation.- For the purposes of this Act,- (a) person shall be deemed to be related persons if- (i) such persons are officers or directors of one another s businesses; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods shall be supplied to the latter at the prices fixed by Castrol. As detailed by the appellant, in this case, the supplier of goods/principal company is issuing Commercial Credit Notes for reimbursement of the reduced price provided by the appellant to the customer as per instructions of the supplier. As emerge from the agreement and the submissions made by the appellant that two types discounts are being offered by Castrol/appellant. 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. 11. As detailed in Section 15(3) o the CGST/SGST Act, pre-supply discounts, recorded in the invoice have been allowed to be excluded w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supply are not complying with the requirements of Section 15(3)(b)(i) of the CGST/SGST Act therefore cannot be considered and allowed as discount for the purpose of arriving at the transaction value in terms of Section 15 of the CGST/SGST Act. In this regard the submissions made by the appellant are liable to be rejected including that AAR had relied upon the Circular dated 28.05.2019, which was withdrawn later vide Circular dated 03.10.2019 and therefore the order is not a speaking order. We find that the wordings of the statute are unambiguously clear in Section 15(3) of the Act, which lays down conditions for discounts to be allowed from the transaction value in case of post sale discount. Irrespective of the Circular which clarified the statue existing on the data of Decision does not change the legal position of the provisions of Section 15 ibid. The facts which are undisputed here are that the said post sale discounts are not known or atleast not quantified at or before the time of supply or not predetermined in the agreement concerned. Hence, the conditions prescribed in Section 15(3)(b) stand not satisfied for the said discounts get excluded from the transaction va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is entitled to discounts announced by Castrol to appellant s dealers in addition to discount rebate of 4.3%. The Appellant is obliged to give the discounts as announced by Castrol to appellant s dealers and in turn is entitled to receive these additional discount from Castrol . This shows that the appellants has not control on the quantum of scheme discounts to be offered. The discounts so offered as per instructions of the supplier of goods/principal company are completely reimbursed by the supplier of goods/principal company. Thus the additional discount given by M/s. Castrol to the appellant is a consideration to offer the reduced price in order to augment the sales. This additional discount squarely falls under the definition of the term consideration as specified under Section 2(31) of the CGST/SGST Act. 16. We find that Section 2(31) specifies as under : (31) 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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