Non-Monetary Benefits like Free Gifts, Tour Packages Received by Dealer from Principal Constitute Supply under GST: AAR [Read Order]

The Authority for Advance Ruling, Tamil Nadu recently affirmed that non-monetary benefits such as free gifts, compliments and foreign or domestic tour packages received by a dealer from its principal manufacturer constitutes supply of service under Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act) and are therefore liable to Goods and Services Tax (GST).

The applicant, M/s Karthick & Co - a registered paint dealer based in Tiruppur, operated both wholesale and retail outlets under a franchisee arrangement with paint manufacturers. The firm received non-cash incentives from their principals in the form of gifts and sponsored travel packages for itself and for painters who purchased large quantities of paint products.

The manufacturers had deducted TDS under Section 194R of the Income Tax Act, 1961 on these benefits. The applicant sought a ruling on whether such non-monetary perquisites amounted to a taxable supply under GST and whether the tax invoice it issued was valid.

P. Rajavel, appeared for the applicant and stated that the manufacturers claim that the said supply would neither fall under supply of goods nor services while reiterating the submissions in their application.

During the proceedings, the Authority noted that the applicant participated in promotional services and achieved sales targets that directly benefited the manufacturers; the non-monetary incentives were provided in recognition of these services and therefore represented consideration in kind.

The bench referred Under Section 7(1)(a) of the CGST Act which states that supply includes all forms of provision of goods or services for a consideration by one person to another in the course or furtherance of business. Accordingly, the Authority concluded that the receipt of such perquisites clearly fell within the scope of “supply.”

The Bench comprising C. Thiyagarajan (IRS), Member (CGST) and B. Suseel Kumar (MBA), Member (SGST) observed that once the manufacturer had deducted TDS (Tax Deducted at Source) under Section 194R of the Act, the benefit was recognised as having monetary value. Therefore, the applicant was correct in treating those perquisites as taxable and issuing corresponding tax invoices charging CGST and SGST.

In conclusion, the AAR ruled that the non-monetary incentives, though received in kind, represent taxable supply of service by the dealer to the manufacturer, and that the applicant is liable to pay GST on such value and its tax invoice for the same is valid under GST law.

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