The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that no service tax is applicable on discounts provided towards the sale of goods.
The bench, comprising Judicial Member P.K. Choudhary and Technical Member Sanjiv Srivastava, clarified that discounts linked to the sale of goods are excluded from the definition of “service” under Section 65B(44) of the Finance Act, 1994. Consequently, such discounts are not chargeable to service tax under Section 66B of the Act for the period starting July 2012.
The appellant, Tata Chemicals Limited, is engaged in the manufacturing and sale of fertilizers, chemicals, soda ash, and other consumer products. One of its key products is Muriate of Potash (MOP), which the appellant purchases from M/s Canpotex Limited, Canada, for resale in India.
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As per the agreement between the parties, the payments made by the appellant were directly linked to the purchase of MOP during the agreed period. This amount was deemed to be an agreed discount on the price of goods, mutually determined by the buyer and seller.
The two member bench of P.K. Choudhary, Member (Judicial) and Sanjiv Srivastava, Member (Technical) noted that the price of goods sold is governed by mutual agreement, where the seller may offer a discount to the buyer, thereby reducing the sale price. The tribunal stated that the form or nomenclature of such discounts does not alter their nature as price reductions.
Further, the tribunal observed that discounts established under an agreement, terms of sale, or established practices—provided they are known at or before the removal of goods—are admissible as deductions when determining the transaction value. Discounts remain valid even if they are not payable at the time of invoicing.
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The tribunal held that no service tax can be imposed on such discounts, as they are directly related to the sale of goods and fall outside the scope of “services” under the Finance Act.
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