HC holds post-supply discount given by manufacturer is not includible in dealer’s value of supply as subsidy

This Tax Alert summarizes a recent judgement of the Madras High Court (HC)[1]. The issue involved was whether the post-supply discount given by manufacturer is to be included as subsidy while computing value of supply in the hands of dealer.

Assessee, a dealer, was directed by the manufacturer to further supply mobile phone to the customer at a discounted price. The assessee was compensated by the manufacturer for the discount amount through credit note. Revenue passed an order demanding GST from the dealer treating such post-supply discount given by manufacturer as subsidy.

Section 15(2)(e) of the Central Goods and Services Tax Act, 2017 (CGST Act) provides for inclusion of subsidies linked to price, excluding Central Government/ State Government subsidies, in the value of supply.

The key observations of HC are:

• Section 15(2)(e) will come into play only when a part of the consideration for the supply is subsidized by a third-party.
  
• The subsidy will get embedded into the “transaction value” only if the subsidy is given by a third- party and is disguised as a discount.
• Further, Section 15(3)(b) of the CGST Act is relevant only for determining the transaction value of the supplier where discount is offered to a recipient after the supply is affected.
  
  Thus, the discount offered to the assessee can impact only the transaction value of the manufacturer. For transaction value of the supply made by assessee, the price which has been actually paid or payable for the supply will be considered.
• Where the manufacturer offers discounts to assessee, such discount cannot form part of the transaction value of further supply by assessee to its customer.

Accordingly, HC held that such post-supply discount is not to be included as subsidy while computing value of supply in the hands of dealer. 

Comments

• The ruling provides much needed clarity to the industry, especially the retail sector where such practice of post-supply discount is most prevalent.
  
• It is relevant to note that earlier, Government had issued a Circular to clarify the taxability of post-supply discount. However, the same was subsequently withdrawn.  

  [1] TS-32-HC(MAD)-2024-GST