Targets Based Incentives earned by Reseller not amount to Trade Discount; 18% GST Applicable: AAAR [Read Order]

While enhancing the AAR’s decision, the Maharashtra Appellate Authority for Advance Ruling (AAAR) decided that 18% Goods and Services Tax (GST) is applicable to incentives earned by the reseller based on quarterly targets. Since the incentive received does not qualify for a trade discount, GST must be paid.

The appellant, M/s MEK Peripherals (India) Private Limited is a reseller of Intel Products. The appellant has their main place of business in the State of Maharashtra. The appellant purchases the products from various distributors who are registered under Goods and Services Tax  Act in their respective states.

The distributors import the product from “Intel inside US LLC” and sell to the Appellant. The appellant further sells the same product to various retailers.

The Appellant has entered into agreement with Intel inside US LLC” (IIUL) under Intel Authorized Components Supplier Program (lACSP) that the appellant will receive a non-binding Plan of Record Target (POR Target).

Under the Plan of Record Target (POR) the Appellant has an opportunity to earn a certain incentive as a percentage of performance to quarterly goals on eligible Intel products.

The appellant reseller asserted that the IIUL is not selling the goods directly to any reseller in India. The goods are sold through the distributors only. Thus, the appellant is purchasing the goods from IIUL only through its distributors. Hence, the incentives received from IIUL are nothing but a trade discount.  

The AAAR bench observed the ruling of the Maharashtra Authority for Advance Ruling (AAR) that since in the present case the supply of goods in respect of which the incentives are purported to be given by IIUL are rendered by the distributors and not by IIUL, the incentive received from IIUL cannot be considered as trade discount.

According to the appellate bench,  the three conditions to qualify as a trade discount are as follows:

1. The supplier and the buyer must have entered into an agreement that includes provision for the discount.
2. The discount is linked to a specific invoice.
3. Any input tax credit attributable to the discount must be reversed by the buyer or recipient of the supply

Furthermore, the above three conditions should be satisfied that the buyer and the supplier have entered into an agreement which is not the case at present. The incentive received is not directly linked to a specific invoice rather than the volume of sale undertaken by the authorized distributor of IIUL.

The Coram of Rajeev Kumar Mital and Dr. D.K. Srinivas observed that “the MAAR has rightly observed that no sale transaction of goods has taken place between the appellant and hence incentives will not be covered under the provisions of Section 15(3) of CGST Act, 2017. “

Thus, the Maharashtra AAAR bench dismissed the appeal. Read AAR Ruling: GST: Incentives Received for Market Services within India cannot be Considered as Trade Discount nor Export Service, rules AAR

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