In a major setback to the traders, the Authority for Advance Rulings (AAR) of Maharashtra has ruled that the post- sale discounts offered by manufacturers to dealers cannot be deducted from the transaction value under the Goods and Services Tax (GST) regime.
The applicant, UltraTech Cement had sought for a clarity over the possibility of GST refund in the case of discount offered to its dealers after sale. The tax treatment of post- sale had been an issue in the industry under the old tax regime too.
“Based on the trade practice and past history, the dealer is aware that there will be compensation in the form of rate difference or trade discount in case of significant correction of prices,” the applicant- Company said.
Overruling the contentions, the AAR ruled that according to GST law, the discount given after the goods have been sold has to be established in terms of agreement signed before or at the time of sale of goods.
The authority found 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.
“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 allowed as discount for the purpose of arriving at the ‘transaction value’ in terms of Section 15 of the CGST Act,” the authority said.
This means that the discount to be given has to be mentioned in the terms of the agreement entered into at the time of sale. “The wordings of section 15 (3) (b) (i) of the CGST Act clearly states that the quantum of discount given after the supply of goods has taken place has to be there in the agreement. It cannot be open ended,” said AAR.
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