1. Incentive received from IIUL under IASCP program is not trade discount.
2. Secondly, it was held that the said amount received is in consideration of supply.
3. Thirdly, the incentive amount received doesn’t fulfill the conditions of export of service.
In this article I will discuss only first two issues as put before the Appellate Authority by the Appellant that
a) Whether the Incentive received from “Intel inside US LLC” under Intel Approved Component Supplier Program (IACSP) can be considered as “Trade Discount”?
b) If not considered as “Trade Discount” then whether it is consideration for any supply?
Facts of the Case
The Appellant purchases the products from various Distributors who are registered under GST Law in their respective states. The distributors import the product from “Intel inside US LLC” and sells to Appellant. The Appellant further sells the same product to various retailers. The Appellant has entered into agreement with “Intel inside US LLC” herein after referred to as (IIUL) under Intel Authorized Components Supplier Program (IACSP) that Appellant will receive a non-binding Plan of Record Target (POR Target). Under the Plan of Record Target (POR) the Appellant will have an opportunity to earn certain incentive as percentage of performance to quarterly goal on eligible Intel products.
On the Point of Discount
The word discount has not been defined in GST Law. However, section 15(3) CGST allows discount to be reduced from the taxable value of supply of goods.
Section 15(3) CGST says – The value of the supply shall not include any discount which is given-
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been affected, if-
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
To qualify the trade discount according to provisions of section 15(3)(b) of the CGST Act three conditions should be satisfied.
1. The supplier and the buyer must have entered into an agreement that includes provision for the discount before or at the time of supply.
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.
In this case the Appellant could not satisfy the above three conditions to qualify the transaction as Trade Discount. The Appellant’s case is analyzed on the basis of the said three conditions as under:
The Appellate Authority observed that to qualify as a trade discount, the same must be known prior to removal of the goods. Also, there should be a change in the taxable value of the supply resulting in the reversal of the ITC. However, in the present case, the quantum of discount is not known at the time of removal of goods rather that is linked to the purchases done by the appellant from the authorized distributors of IIUL. Further, the incentive amount is not flowing from the distributor rather than from the actual manufacturer, and there is no agreement us such with the distributor.
For the incentives to qualify as trade discount, an agreement between seller and purchasing party is a pre-requisite, the same is missing between the distributor and the appellant in this case. Thus, the incentive received from the manufacturer is separate from the transaction undertaken by the appellant with the distributors.
On the Point of Supply of Service
The second question raised by the appellant is that if incentives received by them are not considered as trade discounts, then whether it is consideration of any supply.
The Appellate Authority agreed with the ruling of the MAAR which held that in the absence of any supply of goods between IIUL and the appellant, IIUL is paying consideration to the appellant for receiving marketing services which could augment the sales of intel products.
The Appellate Authority observed that while going through the agreement between the appellant and IIUL, it is evident that it is outcome-based contract, payment of incentives is wholly dependent on outcomes being achieved by the appellant in terms of quantifiable data of purchase/sale of intel products. In such outcome-based contracts the responsibility
to achieve the desired outcome is casted upon the supplier of services under said contract. The specifications and procedures that require to achieve the desired outcome are to be devised by the contractor. It is evident from the contract / agreement between appellant and IIUL that the amount received under scheme is to enhance supply, to emboss Intel brand in India and to keep customer base intact in INDIA and thus implied services are performed by appellant as per the outcome-based contract.
After consider the terms of the agreement the Appellate Authority held that the appellant is bound by the agreement to perform the following tasks: –
(i) They will make their best efforts to sell and market the Intel products
(ii) Assist Intel in implementing Intel’s marketing campaigns
(iii) Provide first-level technical product support.
In lieu of the aforesaid services, the payout is being accrued to the appellant and not in the form of trade discount as claimed by them but in the form of supply of marketing as well as technical support services.
Thus, the trade discount must have been directly received from the supplier of goods subject to fulfilled the other conditions such as the discount received as per terms of the agreement, such agreement has been executed before or at the time supply, such discount linking to the issued invoice and buyer or recipient shall reverse input tax credit attributable to such discount.
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