Dealers must Raise GST Invoice on Non-Monetary Perquisites from Principal if TDS Deducted u/s 194R: AAR [Read Order]

The Tamil Nadu Authority for Advance Ruling (AAR) has held that non-monetary perquisites such as free gifts, compliments and tour packages received by a dealer from its principal manufacturer constitutes taxable supply of service where the manufacturer deducts tax at source (TDS) as per Section 194R of the Income Tax Act, 1961.

The Authority concluded that such benefits represent consideration in kind for promotional or sales-augmentation services rendered by the dealer and therefore attract GST.

The applicant, M/s Karthick & Co, a GST-registered entity engaged in wholesale and retail trading of paint products in Tiruppur, received non-cash incentives from their principal paint manufacturers - including gifts and domestic or foreign tour packages provided both to the dealer and to painters purchasing the manufacturer’s products.

The manufacturers had deducted TDS under Section 194R on the value of these perquisites, and the applicant issued tax invoices charging CGST and SGST. The manufacturers contended that no invoice was required as the receipt of such benefits did not amount to “supply” under the GST law.

P. Rajavel appeared for the applicant and reiterated that the value of perquisites was disclosed in Form 26AS due to TDS under Section 194R and therefore represented income. The applicant sought clarity on whether such perquisites constituted supply, whether TDS-reflected value should be treated as taxable consideration, and whether its tax invoices were valid.

C. Thiyagarajan (CGST Member) and B. Suseel Kumar (SGST Member) examined the nature of the transaction and noted that the manufacturer provided the incentives in recognition of the applicant achieving sales targets and participating in activities that directly promoted the manufacturer’s business.

The Authority observed that under Section 2(31) of the CGST Act, “consideration” includes payments made “in money or otherwise,”

(31) "consideration" in relation to the supply of goods or services or both

includes-

(a) any payment made or to be made, whether in money or otherwise, in

respect of, in response to, or for the inducement of; the supply of goods

or services or both, whether by the recipient or by any other person but

shall not include any subsidy given by the Central Government or a State

Government;

(b) the monetary value of any act or forbearance, in respect of, in

response to, or for the inducement of, the supply of goods or services or

both, whether by the recipient or by any other person but shall not

include any subsidy given by the Central Government or a State

Government:

Provided that a deposit given in respect of the supply of goods or

services or both shall not be considered as payment made for such

supply unless the supplier applies such deposit as consideration for the

said supply;

It was hence noted that non-monetary benefits such as gifts and tour packages could be included under this section. Since the applicant provided sales-augmentation services in the course of business and received perquisites in return, all elements of “supply” under Section 7(1)(a) were satisfied.

The AAR held that the transaction amounted to “supply of support services,” taxable at 18%, and the value must be determined based on Rule 27 of the CGST Rules where consideration is not wholly in money. The Authority further held that the tax invoice issued by the applicant was valid and may be issued inclusive of GST, since no additional monetary consideration was received apart from the value reflected in the TDS certificate.

In conclusion, the AAR ruled that the non-monetary perquisites received by the applicant represent taxable supply of service rendered to the manufacturer and that the applicant is liable to pay GST on such value.

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