AAR of Santosh Distributors Kerala: Reimbursement of discount is taxable:
Although Circular No. 105 dated 28-06-2019 has been withdrawn by Circular No. 112 dated 3-10-2019. But the ghost of Circular is not yet over, as is evident from Kerala AAR ruling in Santosh Distributors [2019]
Without drawing any reference from Circular No. 105 , the ruling lays down that:
a) Discount offered to the customer reimbursed by the registered person’s supplier shall be added to the value of supply made the registered person
b) Customer shall however be entitled to ITC only to the extent of tax charged
c) Financial credit note issued by supplier shall not entail any proportionate reduction of ITC\
Related Topic:
Kerala AAR in the case of M/s Synthite Industries Ltd
Author’s Note:
1. The supplier of goods and not the recipient of goods in this case is bearing the burden of tax which may be collected from the customer through issue of debit note u/s 34(3) and thus ITC may be enjoyed by the customer. But then tax charged shall be disproportionate to the value of supply received by the customer
2. AAR ruling is however less ambigious as compared to Circular No. 105 on the issue of subject matter of supply. The words used in the Circular 105 “……..additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to the customer………….” do not clarify that whether reimbursed amount is supply of goods taxable at respective rate or supply of service taxable @ 18%.
AAR ruling however states that reimbursed amount shall be added to value of supply to the customer.
Hence the reimbursed amount shall be taxable as goods and not as service as per AAR Ruling
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