Goods & Services Tax (GST) in IndiaThe High Court overturned the ruling that required taxes on post-supply volume discounts not to be included in the transaction value

The Hon’ble Madras High Court, in  M/s. Supreme Paradise Versus Assistant Commissioner (ST), [W.P.No.13424 of 2023] decided on 10.01.2024, held that discounts offered by suppliers cannot be included in the “transaction value” unless they are linked to subsidy.

FACTS

M/s. Supreme Paradise, a retailer of mobile phones, (hereinafter referred to as “the Petitioner”) supplied a mobile phone to the customer at a discounted price. The manufacturer compensated the dealer for the discount amount via a credit note.

 However, department (hereinafter “the Respondent”), issued Show Cause Notice against the Petitioner under FORM GST DRC-01 16.12.2022. However, the Revenue issued an order requiring the dealer to pay GST, considering the manufacturer’s post-supply discount as a subsidy.

Further, the Respondent passed an Order , confirming the allegations made in the Show Cause Notice . and stated that   supply value discount is only permissible under the circumstances outlined in Sections 15(3)(a) and (b) of the Tamil Nadu Goods and Service Tax 2017 (hereinafter referred to as “SGST Act”) and the Central Goods and Service Tax Act 2017 (hereinafter referred to as  “CGST Act”). . Whereas, Section 15(3)(b) of the SGST Act explicitly stipulates that the value of the supply excludes any discount applied after the supply has been made. .

ISSUE BEFORE THE SUPREME COURT

Whether discounts linked to subsidies could be included in the “transaction value” under CGST Act?

CONTENTIONS OF THE PARTIES

The Petitioner contested the order, asserting that GST should be applied to the transactional value, which encompassed the entire invoice amount, inclusive of the volume discount.

Additionally, the Petitioner argued that the discount should not be subtracted for GST assessment purposes, and that the invoice amount, inclusive of GST and without deduction of the volume discount, was paid to the vendor-supplier. Therefore, according to the Petitioner, there was no requirement to pay additional tax on the volume discount amount.

While, the contention of the Respondent was that the Petitioner had an alternate remedy before the Hon’ble Appellate Commissioner. Therefore, the Petitioner should appeal before the Hon’ble Appellate Commissioner under Section 107 of the CGST/SGST Act on merit.

In light of this, the Respondent submitted that the writ petitions are not maintainable as the Petitioner has an alternate remedy under Section 107 of the respective GST enactments.

DECISION AND FINDINGS

 The Hon’ble Court observed that Section 15(2)(e) of the CGST Act, applies when a portion of the consideration for a supply is subsidized by a third party. The subsidy becomes part of the “transaction value” only if it is provided by a third party and is disguised as a discount.

Additionally, Section 15(3)(b) of the CGST Act is relevant for determining the transaction value of the supplier when a discount is granted to the recipient after the supply has been made.

Therefore, the discount offered to the Petitioner affects only the transaction value of the manufacturer. For the transaction value of the supply made by the Petitioner, only the price actually paid or payable for the supply is considered.

When the manufacturer offers discounts to the Petitioner, such discounts cannot be included in the transaction value of the subsequent supply made by the Petitioner to its customer.

Accordingly, the Hon’ble High Court ruled that such post-supply discounts should not be treated as subsidies when calculating the value of the supply in the hands of the dealer.

AMLEGALS REMARKS

The interaction between Section 15(2)(e) and Section 15(3)(b) of the CGST Act provides clarity on how subsidies and discounts affect the determination of transaction values in the context of GST calculations. Section 15(2)(e) stipulates that if a third party subsidizes a portion of the consideration for a supply and disguises it as a discount, this subsidy becomes part of the transaction value. On the other hand, Section 15(3)(b) of the CGST Act specifies that discounts granted after the supply has been made should be deducted from the transaction value for the supplier’s GST calculations.

In practical terms, this means that discounts offered by a manufacturer to a dealer, such as post-supply discounts, do not qualify as subsidies from a third party under Section 15(2)(e) of the CGST Act. Instead, these discounts are adjustments to the transaction value between the manufacturer and the dealer. Therefore, when the dealer subsequently supplies goods to customers, the transaction value for GST purposes should reflect only the price actually paid or payable to the dealer, without including the manufacturer’s discounts.

The Hon’ble High Court’s ruling underscores this interpretation, affirming that post-supply discounts provided by the manufacturer to the dealer should not be treated as subsidies. This decision aligns with the statutory framework of the CGST Act, ensuring that the calculation of transaction values accurately reflects the economic reality of the supply chain without inadvertently applying taxes on discounts that are not subsidies from third parties.

In conclusion, the delineation between subsidies and discounts under Sections 15(2)(e) and 15(3)(b) of the CGST Act ensures a consistent approach in determining transaction values for GST purposes, thereby maintaining clarity and fairness in tax assessments within the supply chain.

– Team AMLEGALS