M/S SANTHOSH DISTRIBUTORS [2021 (7) TMI 789 (AAAR, KERALA)

M/S SANTHOSH DISTRIBUTORS [2021 (7) TMI 789 (AAAR, KERALA)] :

Background: Santhosh Distributors, an authorized distributor of Castrol India Ltd., supplied goods to dealers at prices pre-fixed by Castrol’s billing software. Castrol India Ltd. reimbursed Santhosh Distributors for discounts provided to dealers through commercial credit notes. A dispute arose regarding whether GST should be levied on these reimbursement amounts.

Points of Dispute: The main issue was whether the reimbursement of discounts provided by Castrol India Ltd. to Santhosh Distributors should attract GST.

Submissions by the Assessee:

• Santhosh Distributors argued that the discounts reimbursed by Castrol India Ltd. did not constitute consideration for any supply made by Santhosh Distributors to its customers. These discounts were part of schemes communicated by Castrol India Ltd., and Santhosh Distributors merely acted as per the terms specified.
• Under GST law, consideration must be in relation to the supply of goods or services. Since the discounts were not linked to any specific supply by Santhosh Distributors, they should not be subjected to GST.

Submissions by the Revenue:

• The Revenue contended that the discounts reimbursed by Castrol India Ltd. should be considered as consideration for the supplies made by Santhosh Distributors to its customers. These discounts were provided to increase sales and were integral to the pricing and invoicing process.

Findings of the AAAR:

• The AAAR referred to section 15(3)(b)(i) of the CGST Act, which specifies that post-supply discounts should be based on pre-determined criteria agreed upon between the supplier and the recipient. If discounts are provided without such pre-determined criteria, they cannot be considered for reducing the transaction value.
• In this case, the AAAR found that the discounts reimbursed by Castrol India Ltd. to Santhosh Distributors were not based on any pre-determined criteria or parameters. Therefore, they could not be treated as discounts under section 15(3)(b)(i).
• The AAAR concluded that the additional discount provided by Castrol India Ltd. to Santhosh Distributors was essentially a consideration to offer reduced prices and augment sales. Hence, this additional amount constituted consideration under section 2(31) of the CGST Act.

Held:

• The AAAR upheld the ruling of the AAR and held that the reimbursement of discounts or rebates received from Castrol India Ltd. by Santhosh Distributors, over and above the invoice value, should be added to the consideration payable by the customers to Santhosh Distributors for the purpose of determining the value of supply under section 15 of the CGST Act.
• Accordingly, GST would be applicable on the additional discount provided by Castrol India Ltd. to Santhosh Distributors.

Remarks:

• This ruling clarifies the GST treatment of discounts and rebates provided by suppliers to distributors. It underscores the requirement for discounts to be clearly defined and linked to specific pre-agreed criteria to qualify for reducing the transaction value under GST. In cases where discounts are provided without such criteria, they are considered as part of the consideration and are subject to GST.