As per the recently updated GST tax regime, the dealers would be obliged to pay 18% GST on the post-sale discount, if it is passed to them by their companies as a part of promotional activities to benefit the end consumers. If the company has necessarily asked the dealers to pass on this benefit to end customers, then they would have to pay 18% GST.
Although, if the discount was passed to dealers without any obligation by the companies, then they will not be required to pay any GST on it. Such kind of discounts can be generally seen in fast moving consumer goods (FMCG), automobiles, consumer durables, and pharmaceutical products to lure more customers.
Further, the dealers would be eligible to claim ITC against the overall GST paid for the post-sale discounted products. The same has also been confirmed by the Central Board of Indirect Taxes and Customs (CBIC) department last Friday, i.e., 28th June 2019, via a clarification statement.
To offer more clarity on these changes, Abhishek Jain, partner at EY, stated, let’s suppose a car has been sold to a dealer by the company for INR 10 lakh, on which, the dealer has been received a discount of INR 50,000 from the company. No obligation on dealer has been put by the company to pass this benefit to the customers. In such a scenario, the dealer would not be required to pay any GST on Rs 50,000. Although, if the company has asked the dealer to pass this discount to end consumers via some promotional activity, then the dealer would have to pay GST on INR 50,000 too.
One must also note that if the company has asked the dealer to give benefit to the end customer, then the dealer always has to pay GST on the higher value item, not the amount at which he sold the car. For example, in the previous case, if the dealer has a margin of INR 25,000 on the car priced at INR 10 lakh along with INR 50,000 discount, but he has sold the car at INR 9.75 lakh, then he has to pay GST on higher value, i.e., INR 10.25 lakh.
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The CBIC has further made it crystal clear for dealers that they would be eligible to claim input tax credit (ITC) against the whole amount of taxes paid if a post-sale discount is prevalent. Although, this clarification shows dissimilarities with the judgment given by Maharashtra authority for advance ruling (AAR) in MRF Tyres case recently.
Jain, partner at EY said, “This clarification is quite welcome for businesses. However, other clarifications would obligate businesses to re-look at their current tax positions and legally re-evaluate the GST positions.”
The circular also notified that GST would be applied on the calamity cess imposed by Kerela, starting from next month for rehabilitation works to improve the post-flood state conditions.
