Differential Dealer Margin provided by Petroleum Companies to Retail Dealers Deemed Taxable Supply of Service, 18% GST Applies: AAR [Read Order]

The Kerala Authority for Advance Rulings ( AAR ) has clarified that the differential dealer margin provided by petroleum companies to their retail dealers constitutes a taxable supply of service under the Goods and Services Tax ( GST ) regime, taxable at the rate of 18%.

The ruling came in response to an application filed by M/s. Pachuthan Nair & Company, a retail dealer of petroleum products and an authorized dealer of Hindustan Petroleum Corporation Limited (HPCL) in Kerala.

The applicant company sought clarity on whether the differential dealer margin provided by petroleum companies is taxable under GST, and if so, the applicable rate of GST.

M/s. Pachuthan Nair & Company, represented by T. G. Madhavan Unni, contended that the differential dealer margin, credited based on sales volume, is not a taxable supply under GST.

It was also argued that this margin is not a consideration for “agreeing to the obligation to do an act” as per Schedule II of the Central Goods and Services (CGST) Act, 2017. The applicant further submitted that the differential dealer margin is a post-sales incentive, which should be considered a discount as per Section 15(3) of the CGST Act, thereby not attracting GST.

The AAR dismissed these contentions, stating that the differential dealer margin is indeed a consideration for the service of “agreeing to the obligation to refrain from an act”.

The AAR noted that this margin is provided when sales volumes decrease below a mutually agreed level to ensure the dealership remains operational. Thus, the margin falls under clause (e) of Sl. No. 5 of Schedule II of the CGST Act and is taxable under GST.

The AAR further clarified that Section 15(3) of the CGST Act, which deals with the value of taxable supply and discounts, is not applicable in this case. The taxable supply in question is the service of refraining from an act, not the sale of petrol or diesel. As per the GST law, the service of “agreeing to refrain from doing an act” is classified under Heading 9997 and is taxable at 18% GST (CGST 9% and KSGST 9%).

The ruling aligns with the Central Board of Indirect Taxes and Customs (CBIC) Circular No. 178/10/2022-GST, which emphasises the necessary and sufficient nexus between supply and consideration. The differential dealer margin, provided based on an agreement and related to decreased sales volumes, fits this criterion, making it a taxable supply of service.

In conclusion, the two-member authority comprising Smt. Gayathri P.G. IRS (CGST Member) and Shri. Abdul Latheef K (SGST Member) clarified the GST implications of differential dealer margins.

To Read the full text of the Order CLICK HERE

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