According to the specialists, the manufacturers and wholesalers who supply a discount to retailers to pass on to the customers, GST on which is creating confusion and pushing towards possible legal proceedings. The retailers say that GST on discount can put them into a difficult situation following the government’s recent decision.
In June 2019, the Central Board of Indirect Taxes and Customs (CBIC) had explained that the discount extended to dealers from the manufacturers and wholesalers assists in growing sales of retailers and this way tax considerable amount is passing on to retailer via the supplier. While the amount (discounts) needs to be a part of the transaction value between the retailer and consumers on which the Goods and Services Tax will be paid.
According to the experts, this leads to confusion when a purchase takes place. Consequently, there are high chances of raising any dispute between dealer and consumer because the latter often won’t understand and don’t want to pay additional amount as the tax on passed discount apart from the calculated sale price. Hence, the tax on discount passed to the consumer is an additional burden to retailers.
To understand it better, CBIC passed a GST circular on 28 June which explains if any discount is provided by the supplier to retailers without any obligations of depicting services as an advertisement campaign or special sales drive, the discount won’t be considered for GST. on the other hand, if the manufacturer or supplier put obligations to the retailer on the provided discount, that cut off will be liable for GST. For such cases, the tax authority had already urged to explain discounts separately as a transaction between the supplier and the retailer apart from the sale of goods made to end consumer.
“The clarification on discounts with an obligation of passing it to the recipient, forming a part of the value on which GST is leviable (even while the said is not commercially payable by the recipient) opens a Pandora’s box for most industry players; essentially because companies had always viewed these discounts as price reductions and not included them for payment of GST,” said an industry expert.
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The disputes on tax on discounts have already been witnessed before the GST tax regime. In 2012, a dispute between the central excise commissioner, Mumbai and Fiat India (P) Ltd was produced against the supreme court. Wherein declared wholesale price by the company was lower than the production cost, can’t be considered as a normal price for levying excise duty as it results in short payment of tax. The decision was that discount given to the consumers for gaining market penetration would be considered taxable.