In Re: M\/s. Ultratech Cement Limited
GST
2018 (7) TMI 1761 – AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – 2018 (15) G. S. T. L. 455 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – AAR
Dated:- 27-6-2018
ARA-34\/2017-18\/B-56
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
\nPROCEEDINGS
\n(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
\nThe present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by M\/S. Ultratech Cement Limited, the applicant, seeking an advance ruling in respect of the following question :
\nWhether the amount paid to dealer towards “rate difference” post supply can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the Central Goods and Service Tax Act (“CGST Act”),
\nAt<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n d allied products (hereinafter referred to as “goods”) which are taxable under GST law. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n tions, the authorised dealers\/stockists of the applicants have lo sell the goods purchased from the applicant, at a price lower than their purchase price i.e. the price at which the goods are sold by the applicant to continue in business for the reason that the market for cement is very dynamic and the prices keep changing – not only on daily basis but on real time basis. Hence, it sometimes happens that the authorised dealers\/stockists of the applicants have to sell the goods purchased from the applicant, at a price lower than their original purchase price to continue in business i.e. the price at which the goods are originally billed by the applicant. For eg. the dealer has to sell a 50 kg bag of cement to ultimate customer at Rs. 295\/- based on then prevailing market conditions even though the said dealer purchased the said bag of cement from the applicant at Rs. 300\/-. The dealer is aware that there will be compensation in form of “rate difference” as per past practice. However, th<\/p>\n = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n lls goods to the trade a percentage deduction from the regular list or catalogue price of goods.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n rs\/stockists is reduced effectively to that extent. At this stage, we are enclosing the invoices issued by the applicant on the authorised dealers\/stockists for supply of cement at full value and subsequent credit notes issued to the authorised dealers\/stockists for reduction of sale price on account of rate difference as (Annexure-21 & (Annexure-3) collectively. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n cope of the term 'applicant', as defined under sub-Section (c) of Section 95 of the CGST Act shall include both, the person registered under the CGST Act and also the person who is not registered as on date of applying for the advance ruling, but is desirous of seeking registration under the CGST Act, in the state where advance ruling is sought. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n larifies that the advance ruling can only be sought on the issues, as arc specified under Section 97(2) of the CGST Act, which reads as under- = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n e deemed to be the Authority for advance ruling in respect of that State or Union territory.” = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n EQUIRING ADVANCE RULING = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n etermined at time of removal of goods from the factory of the assessee. In the case of the applicant, the consideration received from the authorised dealers\/stockists after giving the effect of rate difference shall be treated as price “actually payable” by the authorised dealers\/stockists for the supply of taxable goods in terms of Section 15(1) of the CGST Act. The value received by the applicant after giving the treatment of rate difference would be considered as price for arriving at the “transaction value” for the purpose of payment of GST in terms of Section 15(1) of the CGST Act. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ribed. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n side of Jurisdictional Officer. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n pply of cement and allied products which are taxable under the GST law. The goods manufactured at the applicant's various units are supplied by them to various authorized dealers\/stockists located in the State of Maharashtra and also to authorized dealers\/stockists situated in various other states. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n their original purchase price to continue in business i.e. the price at which the goods are originally billed by the applicant. For eg. the dealer has to sell a 50 kg bag of cement to ultimate customer at Rs. 295\/- based on then prevailing market conditions even though the said dealer purchased the said bag of cement from the applicant at Rs. 300\/-. The dealer is aware that there will be compensation inform of “rate difference” as per past practice. However, the dealers\/stockists are not aware of the exact amount of compensation to be received from the applicant. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n nding which arc reproduced in their submissions part have opined and claimed that the answer to both the questions that has been raised in their application are in the affirmative and the transactions as per facts stated in the application are allowable under Section 15 and Section 34 of the GST Act. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n subsidy. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n on 15(3) of the CGST Act are of specific relevance in the present case before us. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Motani entered into at Mumbai on dated 20 June, 2012; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ates that the company will further decide and pay discount at such rate after the quantity is already sold to the stockists. That the discounts are decided after the goods are already sold to the stockists, was confirmed by their representatives as well, at the time of the Personal Hearing. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n o even 100% as per discretion of the supplier and certainly such abnormal discounts without any criteria or basis can in no way be considered as fair and at arm's length business transactions and no taxation statute can be construed to be having open ended discount with legislative intent. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n igible for the said Incentive Schemes the Dealer shall be credited with the entitled discount\/incentive, online. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n , 2, 3, 4, and 5 respectively are clearly complying with the requirements of the CGST Act and the criteria or conditions for availing discount as per Section 15(3)(b)(i) and (ii) of the CGST Act and the criteria or conditions for availing discount as per Section 15(3)(b)(i) are specifically mentioned as per agreement before hand. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" In Re: M\/s. Ultratech Cement LimitedGST2018 (7) TMI 1761 – AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – 2018 (15) G. S. T. L. 455 (A. A. R. – GST)AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – AARDated:- 27-6-2018ARA-34\/2017-18\/B-56 GSTSHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER PROCEEDINGS (under section 98 of the Central Goods and Services Tax Act, … Continue reading “In Re: M\/s. Ultratech Cement Limited”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-12879","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/12879","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12879"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/12879\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12879"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12879"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12879"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n2. The applicant has obtained registration and holding valid registration certificate issued under Central Goods and Services Tax Act, 2017 (“CGST Act”).
\n3. The applicant is manufacturing goods at its manufacturing units located at, Taluka: Korpana, District Chandrapur, Hotgi- District Solapur, Mouda District. Nagpur, Ratanagari, Post-JNPT-Nava Seva- Navi Mumbai and Pune in the State of Maharashtra. Besides this there are plants situated in other States also.
\n4. The goods manufactured at the aforesaid units arc supplied by the applicant to various authorised dealer\/stockists located in state where the above registration certificate is obtained and also to authorised dealer\/stockists situated in different states. Apart from the same, the goods received from other States are also supplied to customers\/dealers in the State.
\n5. The applicant enters into an agreement with the authorised dealers\/stock<\/p>\n
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\n13. Therefore, the trade discount is the difference between the regular list or catalogue price and the actual price at which the goods are sold by the trader. At this stage, we refer and rely on the CBEC's excise manual of supplementary instruction, 2005 in Chapter 3, Part – III of Para 2.5(iv) has clarified as follows with regard to deduction of trade discount.
\n (iv) discount of any type or description given on any normal price payable for any transaction will not form part of the transaction value for the goods, e.g. quantity discount for goods purchased or cash discount for the prompt payment etc. will therefore not form part of the transaction value. However it is important to establish that the discount has actually been passed on the buyer of the goods. The differential discount extended as per commercial consideration on different transactions to unrelated buyers is also perm<\/p>\n
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\n16. It is submitted that the transaction of compensating the authorised dealers\/stockists on account of 'rate difference' is generally followed in the entire Cement Industry.
\n17. Section 15(1) of the CGST Act states that the value of supply for purpose of GST would be the “transaction value”, which is the price actually paid or actually payable for such supply between unrelated parties, and where the price is sole consideration for supply.
\n18. Further, Section 15(3)(b) of the CGST Act states that, the discount provided after the supply has been effected shall be excluded from the value of supply subject to fulfilmen<\/p>\n
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\n20. Even though the sale price of the goods sold by the applicant to the authorised dealers\/stockists gets reduced subsequently due to rate difference, the applicant ends up paying GST on the total value mentioned in the original invoice issued to the authorised dealers\/stockists as compared to the realization received from the customer\/dealer.
\n21. Under the aforesaid circumstances, the amount paid to the authorised dealers\/stockists towards rate difference, without taking the adjustment of same in the output tax liability of the applicant, is becoming cost to the applicant, in other words, once the benefit of rate difference is passed on to the dealers\/stockists, the effective value of original supply gets reduced and this results in charging of higher tax than what is mandated by law. Due to absence of clarity in law, the applicant seeks the applicability of Section 34{1) o<\/p>\n
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\nA.3 Further, Section 22 of the CGST Act, specifies the person liable for registration and reads as under:-
\n“22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory. other than special category States, from where he makes a taxable supply of goods or services or both. if his aggregate turnover in a financial year exceeds twenty lakh rupees:
\n… Emphasis Supplied
\nA.4 The above referred Section can be vivisected into following essentials: –
\na. A supplier shall be liable to be registered under CGST Act in the State or Union Territory, from where he makes taxable supply of goods or services<\/p>\n
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\n“97. (1) An applicant desirous of obtaining an advance ruling under this Chapter may wake an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.
\n(2) The question on which the advance ruling is sought under this Act, shall be in respect of,-
\n (a) classification of any goods or services or both;
\n (b) applicability of a notification issued under the provisions of this Act;
\n (c) determination of time and value of supply of goods or services or both;
\n (d) admissibility of input tax credit of tax paid or deemed to have been paid;
\n (e) determination of the liability to pay tax on any goods or services or both;
\n (f) whether applicant is required to be registered;
\n (g) whether any particular thing done by the applicant with respect to any goods or servi<\/p>\n
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\nEmphasis Supplied
\nA.9 Hence, an Advance Ruling Authority appointed by the concerned State or Union Authority Government under concerned State or Union Territory Goods and Service Tax Act, shall be the deemed to be the Advance Ruling Authority for the purpose of CGST Act. The Section 96 of the Maharashtra Goods and Service Tax Act, 2017, reads as under:-
\n“SECTION 96
\n(1) The Government shall, by notification, constitute an Authority to be known as the Maharashtra Authority for Advance Ruling:
\nProvided that the Government may, on the recommendation of tlie Council, notify any Authority located in another State to act as the Authority for the State.
\n(2) The Authority shall consist of-
\n (i) one member from amongst the officers of Central tax; and
\n (ii) one member from amongst the officers of State tax, to be appointed by the Central Government and the State Government respectively.
\n(3) The<\/p>\n
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\nB. The question on which Advance Ruling is sought by the Applicant is as under:-
\n * Whether the amount paid to authorized dealers towards “rate difference” after effecting the supply of goods by the applicant to aforesaid dealers can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act.
\n * Whether the amount paid to authorized dealers towards “rate difference” after effecting the supply of goods would be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1) ibid.
\nAPPLICANTS INTERPRETATION
\nC. Applicants understanding
\nC1 The applicants understanding is that Section 15(3) of the CGST Act has been enacted to allow deduction from the taxable value, of any discount or incentive or any other relief that may be given by the Supplier to the recipient, in respect of the goods or services supplied. On the other hand, 34(1) of the CGST Act provid<\/p>\n
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\nC.4 In such situation, the applicant submit that the Section 15(1) read with Section 34(1) of the CGST Act, it can assess the duty liability by reducing the amount equal to rate difference mentioned in the credit note given to the authorised dealers\/stockists towards rate difference.
\nC.5 The interpretation that the operation of Section 34(1) is limited only to the amounts which qualify as “discount” u<\/p>\n
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\nIn this regards, the relevant portion of the Section 34 of CGST Act is reproduced below,
\n“34. Credit and debit notes. – (1) Where a tax invoice has been issued for supply of any 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 or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
\n(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return of the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the r<\/p>\n
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\nThe application was admitted and called for final hearing on 15.05.2018, Sh. Nirav Karia, Advocate, appeared and stated that they were making submissions in respect of details as asked for during preliminary hearing. However, he requested that since his senior was not available today, an adjournment is respect of final hearing be granted to them. Jurisdictional Officer Sh. Shivkumar Salunkhe, Dy. Commissioner CGST & Central Excise Division, Chandra pur appeared and made written submissions and stated that they do not want any further hearing. It is communicated to Sh. Nirav Karia, that adjournment would be considered subject to availability of new dates as found convenient in schedule of ARA and to this he agreed to.
\nThe final hearing in the matter was held on 06.06.2018. Shri Nirav Karia, Advocate, appeared made written and oral submissions as per ARA application. He was requested to give documentary evidence in respect of Para 24 of his agreements w<\/p>\n
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\nFurther factual position as stated by the applicant in his application is as under:-
\n“5. The applicant enters into an agreement with the authorised dealers\/stockists for supply of goods on a principal-to-principal basis. Tlie agreement entered with the authorised dealers\/stockists provides that the goods shall be supplied to the latter at the prices fixed by the applicant. Copies of agreement entered into between the applicant and authorised dealers\/stockists are enclosed as (Annexure-1) collectively.
\n6. Further, the agreement also provides that the applicant shall provide various discounts to the authorised dealers\/stockists at the rates as may be decided by the applicant alone, from<\/p>\n
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\n10. Based on the trade practice and past history, the dealer is aware that there will be compensation in form of rate difference in case of significant correction of prices.
\n11. In order to provide relief to the authorised dealers\/stockists in such scenario, the applicant pays a certain amount to the authorised dealers\/stockists as 'rate difference' (Commonly known as 'Trade Discount' also). The aforesaid pa<\/p>\n
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\nIn view of the above facts of the case and to examine the claims made by the applicant we find that Section 15 of the CGST Act reads as under:-
\nSection 15:- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
\n(2) The value of supply shall include-
\n (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services<\/p>\n
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\n(3) The value of the supply shall not include any discount which is given-
\n (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
\n (b) after the supply has been effected, if-
\n (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
\n (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.
\n(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (I), the same shall be determined in such manner as may be prescribed.
\n(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.
\nExpl<\/p>\n
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\nWe find that Section 15 of the CGST Act states that the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of supply are not related and price is the sole consideration for the supply.
\nWe further find that Section 15(3) of the CGST Act states that the value of supply shall not include any discount which is given in ways as under:-
\n(a) Any discount which is given before or at the time of supply if such discount has been duly recorded in the invoice issued in respect of such supply.
\n(b) After the supply has been effected if
\n (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
\n (ii) input tax credit as is attributable to the discount on the basis<\/p>\n
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\n(iii) Ultra tech Cement Ltd and Mr. Raju K Shah entered into at Mumbai on dated 20 June, 2012;
\nIn respect of all the three agreements which are representative samples, we find that para 21, 22, 23 and 24 which are exactly the same in all the three agreements and gives sale procedure and discount as under:-
\n“Para 21:- In respect of the sales made by the authorized stockiest it will maintain proper records and shall submit copies thereof from time to time as may be required by the Company, Vie Company through itself or its representatives shall have the right to inspect the premises and records maintained by the Authorized Stockist and ask for any clarification in respect of the same from the Authorized Stockist. The Authorized Stockist shall also furnish to the Company any information, statistical or general, concerning demand, supply and prices of product in general.
\nPara 22:-The Company shall sell and supply the Authorized Sto<\/p>\n
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\nIn view of this we find that the discount\/rate difference being given by the applicant will have to be examined for eligibility or otherwise, as per the terms and conditions given in Section 15 (3) (b) of the CGST Act referred above.
\nWe find that the discount that is given after the goods have been sold has to be established in terms of the agreement entered into at or before such supply i.e. the discount that is to be given afterwards has to be mentioned in the terms of the agreement or the criteria for arriving at the quantum or percentage of discount has to be given in the terms of the agreement which is entered into at or before such supply.
\nThe wordings of Section 15 (3) (b) (i) very clearly<\/p>\n
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\nIn view of the detailed discussions above now when we have a relook at para 24 of the Applicant's agreement with authorized stockists which states that the company will pay discount at such rate as may be decided by the company from time to time on the quantity sold to the authorized stockists in a particular month, we find that there is no basis or criteria or parameter (which may even be of personal relations nature between the parties to the agreement) mentioned in the agreement on the basis of which the quantum of discount to be given on the goods which have already been supplied is mentioned.
\nFurther the Applicant during the course of proceedings stated that they are further submitting<\/p>\n
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\n2.4 UltraTech shall issue credit notes for discounts and the same shall be linked with the respective Tax invoices of UltraTech.
\n2.5 The Dealer agrees to reverse the corresponding input tax credit in his books in the same month during which the Discount is given by UltraTech to the Dealer by way of aforesaid credit note.
\n2.6 The Dealer shall effectuate the reversal of credit in the monthly GST returns and shall fully comply with the provisions of the GST Act.
\n2.7 The Dealer accepts and agrees to indemnify and compensate UltraTech for the losses incurred by UltraTech in the event UltraTech is not able to take input tax reversal of credit notes within 60 days of issuance of credit note due to non-reversal by the dealer. The Dealer agrees to indemnify and make good the loss to UltraTech including any interest, penalty and all other legal costs and expenses.
\n3. The Parties <\/p>\n
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\nHowever we find that in respect of special discount and rate difference as mentioned at Sr. No. 6 and 7 of the above referred GST Annexure for Mumbai region, there is no pre fixed criteria, basis or rationale for arriving at the quantum of these discounts neither as per basis mentioned in GST Annexure for Mumbai region nor as per amendments incorporated in agreements with authorized stockists as referred above.
\nThus we find that the amount paid to the Dealer towards “rate difference” and “special discount” as mentioned above, post supply are not complying with the requirements of section 15(3)(b)(i) of the CGST Act and therefore cannot be considered and allo<\/p>\n
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