Case Law Details
In re Karthik & Co. (GST AAAR Tamilnadu)
The appeal before the GST Appellate Authority for Advance Ruling Tamil Nadu arose from an Advance Ruling issued by the Authority for Advance Ruling (AAR), Tamil Nadu, concerning the GST treatment of non-monetary benefits received by a registered dealer engaged in wholesale and retail sale of paints. The appellant operates on a principal-to-principal basis with manufacturers and receives both monetary discounts and non-monetary incentives such as gifts, travel packages, and entertainment tickets under dealer schemes. These non-monetary benefits are subject to tax deduction at source (TDS) under Section 194R.
The appellant had originally approached the AAR seeking clarification on whether tax invoices raised for such non-monetary benefits are valid under GST law, whether the value subjected to TDS should be treated as “supply,” and if so, under which provision of the GST law such treatment arises. The AAR, in its ruling, held that the benefits received constituted “consideration” for supply of support services and were therefore taxable under Central Goods and Services Tax Act, 2017, specifically under Section 7 relating to “supply.”
Aggrieved by this ruling, the appellant filed an appeal, contending that the AAR failed to consider relevant clarifications issued through Circular No. 251/08/2025-GST dated 12.09.2025, which addressed post-sale discounts in principal-to-principal transactions. The appellant further argued that the non-monetary benefits received were not in the course or furtherance of business and that there was no agreement governing such benefits at the time of the original application.
During the appellate proceedings, the appellant sought condonation of delay, which was granted, and the matter was taken up for hearing on merits. At the personal hearing, the authorized representatives clarified that certain facts submitted before the AAR were incorrect and required rectification. Specifically, it was stated that the appellant is not a franchise of the manufacturer but operates independently on a principal-to-principal basis. Further, it was clarified that there are pre-existing agreements in the form of scheme documents that govern the provision of non-monetary benefits upon achievement of sales targets.
The appellant emphasized that these benefits are in the nature of post-sale incentives intended to promote sales and do not constitute consideration for any supply of service. Reference was again made to the aforementioned circular, which clarified that post-sale discounts offered by manufacturers to dealers should not be treated as consideration for supply. The appellant also submitted that the deduction of TDS under income tax law does not automatically imply that a supply exists under GST law.
Upon examination of the records, the Appellate Authority noted that the facts presented during the appeal and personal hearing materially differed from those originally submitted before the AAR. The initial application had indicated that there was no agreement between the parties and that the appellant functioned as a franchise, whereas the revised submissions clarified the existence of agreements and a principal-to-principal relationship.
Given this divergence in factual submissions, the Appellate Authority observed that it was not in a position to adjudicate the matter based on the altered facts. Since the original ruling was based on a different factual matrix, the appellate body concluded that a fresh examination was necessary. Consequently, the case was remanded back to the AAR with directions to reconsider the matter afresh, taking into account the revised facts and ensuring adherence to the principles of natural justice.
The appellate order did not decide the substantive issue of taxability but focused on the procedural aspect, emphasizing that consistency and accuracy of facts are essential for adjudication. The remand allows the original authority to re-evaluate the matter in light of corrected submissions and applicable legal provisions.
Read AAR Order in this case: In re TVL. Karthik & Co (GST AAR Tamilnadu)
FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING,TAMILNADU
At the outset, it is made clear that the provisions of both the Central Goods and Services Tax Act and the Tamil Nadu Goods and Services Tax Act are in pari materia and have the same provisions in like matters and differ from each other only on few specific provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central goods and services Tax Act, 2017 would also mean a reference to the same provisions under the Tamil Nadu Goods and Services Tax Act, 2017.
2. The subject appeal was filed under Section 100(1) of the Tamil Nadu Goods and Services Tax Act, 2017/Central goods and services Tax Act, 2017 (hereinafter referred to the Act’) by M/s. Karthik & Co, (herein after referred to as Appellant’). The Appellant is registered under the GST Act vide GSTIN 33AAGFK0960KIZD. The appeal was filed by the appellant against the Order No.46/ARA/2025 dated 17.11.2025 passed by the Tamil Nadu State Authority for advance Ruling (hereinafter referred to as ‘AAR’).
3. The Appellant is a partnership company under the administrative control of `STATE’ and they are engaged in the wholesale and retail sales of paints and related products. The appellant purchases paints and other hardware from manufacturers and wholesale traders. The relationship between the paint manufacturers and wholesale traders is purely principal to principal and the manufacturer/supplier provide them (a) Cash discount through credit note and (b) non-monetary benefits like Gifts, compliments, tickets for entertainment shows and trips. These non-monetary benefits are liable to TDS @10% as ‘perquisites’ under Section 194R of Income Tax Act. The Appellant is raising tax invoice on these non-monetary considerations received by them. The Appellant had applied for Advance Ruling vide application ARA-01 No.11/2025/ARA dated 28.02.2025, with regard to queries on (i) whether the Tax invoice raised by them for the non-monetary benefits/perquisites is valid under GST Act (ii) whether the value on which TDS deducted under Section 194R of Income Tax Act should be considered as supply? And (iii) if the same is considered as supply, whether it is being construed as supply through any Notification or under any Section of GST Act? The Advance Ruling authority videRuling No.46/ARA/2025 dated 17.11.2025 pronounced the decisions that the benefits received by the appellant is ‘consideration’ towards ‘supply of support service’ and therefore would be covered under Section 7 of CGST Act, 2017.
4. Aggrieved with the above ruling of the Advance Ruling Authority, the appellant filed this appeal on the ground that Advance Ruling Authority has failed to consider the Circular No. 251/08/2025-GST dated 12-09-2025 which clarifies the treatment of post-sale discounts in case of principal-principal transactions. Further contended that the perquisites are not in the course of furtherance of businesses. The appellant has stated that they have not entered into any agreement with the manufacturer and dealer/end customer.
5. We observe that in this case, the appellant had also filed a petition for condonation of delay and the delay in filing the Appeal by the Appellant has been condoned vide AAAR No.02/2026 (AR). Now the Appeal is taken up for consideration on merits. Accordingly, an opportunity of personal hearing was accorded to the appellant.
6.PERSONAL HEARING
6.1 The appellant was given an opportunity once on 26-03-2026. The appellant expressed his inability to attend the personal hearing on the scheduled date and sought adjournment. Again, the hearing was fixed on 07-04-2026 which was held on 08-04-2026 due to preoccupation of Members.
6.2 Shri. P. Rajavelu, Advocate and Ms. Sahana R, Advocate appeared for the personal hearing on 08-04-2026 as authorized representatives (AR) of M/s. Karthik & Co. in respect of the appeal filed against the Advance Ruling No.46/ARA/2025 dated 17.11.2025. They submitted a copy of the additional written submissions sent.
6.3 AR explained that M/s.Karthik & Co (Appellant) are engaged in purchasing Paint from manufacturers and selling them to various customers. The Paint manufacturers are offering incentive schemes in the nature of gifts or tour packages to the Appellant upon achievement of targets based on volume of sales. The Appellant had applied for Advance Ruling as to whether the said gifts or tour packages received fall under ‘Supply’ to merit GST.
6.4 The AR stated at the time of applying for Advance Ruling that M/s. Karthik & Co had inadvertently mentioned that they are a franchise of the Paint manufacturers and that there is no prior agreement between them regarding provision of such non-monetary benefits to them.
The AR stated that the Appellant wishes to state the correct facts as follows:
a) The Appellant purchases paints from the paint manufacturers on principal-to -principal basis and on receiving the title on purchase, they sell the goods independently to various customers.
b) Manufacturers extend monetary or non-monetary post-sale benefits to the Appellant under Dealer schemes upon achievement of targets. There are prior agreements between paint manufacturers and the Appellant in the form of Scheme Documents clearly mentioning the non-monetary benefits.
The AR requested that the above facts be taken on record.
6.5 They referred to the Board Circular No. 251/08/2025-GST dated 12.09.2025 wherein it has been clarified that post-sale discounts offered by manufacturers to dealers shall not be treated as consideration for supply of services.
6.6 The AR also referred to the deduction of Income Tax under Section 194R in respect of benefits or perquisites but that does not imply that there is a supply being done by the appellant to the manufacturer. These benefits only help in boosting the sales of the appellant.
6.7 The AR has further mentioned that there are several case laws listed in their written submissions which support their case. AR requested for the above clarification on the Ruling.
7. DISCUSSION AND FINDINGS:
7.1 We have carefully examined the submissions made by the Appellant in their appeal against the Advance Ruling No. 46/ARA/2025 dated 17.11.2025 and the submissions made during the personal hearing. We have also considered the issue involved, the relevant facts and the Appellant’s submission/interpretation of law in respect of question on which the advance ruling is sought.
7.2 We note that the appellant purchases paints and other hardware from manufacturers and wholesale traders. The relationship between the paint manufacturers and wholesale traders is purely principal to principal and the manufacturer/supplier provide them (a) Cash discount through credit note and (b) non-monetary benefits like Gifts, compliments, tickets for entertainment shows and trips. These non-monetary benefits are liable to TDS @10% as ‘perquisites’ under Section 194 R of Income Tax. The Appellant is raising tax invoice on these non-monetary considerations received by them.
7.3 We find that the Appellant at the time of applying for Advance Ruling before the Authority for Advance Ruling had furnished that they are a. franchise of the Paint manufacturers and that there is no prior agreement between them regarding provision of such non-monetary benefits to them. Based on which the Advance Ruling authority vide Ruling No.46/ ARA/2025 dated 17.11.2025 pronounced the decisions that the benefits received by the appellant is ‘consideration’ towards `supply of support service’ and therefore would be covered under Section 7 of CGST Act, 2017.
7.4 However, we note from the appeal and the submissions made during the personal hearing that the Appellant had inadvertently mentioned certain details at the time of original application and requested to correct the same and take the following facts on record.
a) The Appellant purchases from the paint manufacturers on principal-to principal basis and on receiving the title on purchase, they sell the goods independently to various customers.
b) Manufacturers extend monetary or non-monetary post-sale benefits to the Appellant under Dealer schemes upon achievement of targets. There are prior agreements between paint manufacturers and the Appellant in the form of Scheme Documents clearly mentioning the non-monetary benefits.
7.5 We find that the Appellant in their Appeal submissions and personal hearing has furnished facts which are completely different and divergent from the facts furnished at the time of original application before the original Advance Ruling Authority (AAR). As such, this Appellate forum (AAAR) is not in a position to pass an order on the Ruling passed by the Advance Ruling Authority due to the change in facts furnished by the Appellant.
8. Accordingly, we pass the following order:
ORDER
We, therefore, remand the case back to the original authority of Advance Ruling to take up the matter afresh and pass a Ruling by following the principles of natural justice.
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