Incentives as Discounts
By: – CA Akash Phophalia
Goods and Services Tax – GST
Dated:- 14-12-2017
Section 15 states about the valuation principles under GST. Section 15(3) reads as under –
“Section 15(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 been duly recorded in the invoice 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.”
The simple understanding form the above provision is that the discount is admissible as deduction from the sale value only when the conditions mentioned in the said section is fulfilled. To put it differe
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nerally given upfront as reduction from the sale price in the invoice itself. Therefore, the said trade discount is admissible as deduction from the sale price and no GST is required to be paid on such trade discount. In the case of Orient General Industries Ltd v/s Collector of Central Excise, New Delhi 1984 (12) TMI 303 – CEGAT NEW DELHI, it was held in para 13 that the Lordships of Supreme Court have permitted the deduction of discount allowed in the trade by whatever name such discount is described having regard to the nature of goods provided the same is established either under an agreement or in terms of sale of by established practice. The said decision will hold true in GST regime also, however, with an additional condition that the said trade discount is either in the invoice itself or is specifically linked to the invoice.
Another kind of practice prevailing in the industry is to provide discounts in the form of incentives by way of reduction in the price of the product. Su
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
es reference of the various judicial decisions cited in the judiciary.
In Grey Worldwide (1) Pvt . Ltd v/s Commissioner of Service Tax, Mumbai 2014 (9) TMI 180 – CESTAT MUMBAI it was held that –
“It is seen and as correctly pointed out by the learned counsel that the coordinate bench of the Tribunal in the three cases as cited herein above, have held that the discounts/incentives received by the assesses from the print media will not be liable for service tax under the category of advertising agency services. If that be so, the said discount/incentive itself cannot be considered for the purpose of taxability under the head business auxiliary service as the amounts which are received are received are in respect of the services provide under the head category of advertising agency services and the amount are discounts and incentives and not as charges for service.
Again in the case of tradex polymers Pvt.Ltd. these views were reiterated. Therefore, it can be seen that the tribunal has
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
aras 3, 4]
In Satnam Auto v/s CCE, Meerut I, 2017 (3) TMI 117 – CESTAT NEW DELHI –
Business Auxiliary services – Target incentive – “Depot Expenses” paid by manufacture in pursuance of declared policy for achieving target in sales to authorised dealer – cannot be subjected to service tax under category of business auxiliary services or business promotion services provided to manufacturer – sections 65, 66 and 73 of finance act, 1994. [2016 (43) S.T.R. 158 (Tribunal) relied on]. [para – 6]
In Toyota Lakozy Auto Pvt Ltd v/s CST Ex Mumbai I-II &V 2016 (12) TMI 541 – CESTAT MUMBAI –
Business Auxiliary service – commission / incentive received under dealership agreement – agreement with manufacture for supply of vehicles on principal – to- principal basis on which title and risk, passed on to assessee when vehicles are excise cleared and placed on common carrier – assessee when vehicles are excise quantity invoices raise by manufacture after according discounts designated as commission
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
he removal of the goods. In the case it is not possible to determine the quantum discount because it is based on a target figure to be found by the appellants at a future date. We are therefore of the firm view that the appellants are not entilled to any deduction on the ground of incentive bonus discount, which was contigent is nature.
(b) In S.S. Miranda Ltd v/s Union of India 1985 (4) TMI 78 – BOMBAY HIGH COURT –
Valuation – Trade discount – 'Surprise Incentives' not known at or prior to the time of removal of goods but contingent upon customer's purchasing a particular quota and during a particular period . not deductible as trade discounts from sale price – section 4 (4) (d) (2) of central excises and salt Act, 1994.
The trade discounts if they are to be allowed as deductions from the sale price must be known at or prior to the removal of the goods. Judged on this criterion the discounts claimed for none the periods are permissible as deduction. As regards the period upto 31
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
red the individual consignments during the said three months, the quantum of discount that they would be entitled to. In fact at the time they cleared the specific consignments during the said three months they would not even be sure that they would get any discount at all. In other words the incentive was not as matter of course accompanying each purchase was more in the nature of a contingent benefit. It could hardly be described as a trade discount. Both the circulars did not make a secret of the fact that they were both surprise and incentive schemes. At best this was a profit sharing scheme between the petitioners and their customers on the customers reaching the targets of purchase. Therefore, the petitioners are not entitled to claim any deduction on account of their said surprise incentive scheme for the year 1983.
In view of the various judicial decisions incentives have escaped taxability under service tax law on the dominant contention that incentive is a sort of profit sha
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
