AAR: Additional discount passed from DCA to customer in nature of ‘pure-agent’, not ‘supply’

Categories: Advance Ruling
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FactM/s KK Polymers (“the Applicant”) is a Del Creder Agent (DCA) of the supplier of goods. The applicant receives orders from the customers and places it with the principal and goods are directly supplied by the principal to the customer by charging applicable GST on the invoice. Further as per pricing policy customer can avail dispatches in cash or credit (10 days Basis). Whenever payment is received before due date early payment incentive is given to the customer and in case of delay in supply and quality issue, the principal compensates accordingly.

Issues Involved– The applicant is seeking an advance ruling in respect of the following major issues:

  • Whether the amount passed on to the customer by DCA on account of the early payment before credit period allowed by the principal constitute “Supply” and it is so then Who is the Supplier and Receiver, the HSN Code along with the Applicable Rate?
  • Whether the aforementioned supply is exempted from Goods and Service Tax under CGST Notification No. 12/2017 Central Tax (Rate) dated 28th June 2017, applicable w.e.f. 01.07.2017?
  • If GST is charged by customer on such invoice, whether the DCA is entitled to take ITC of the said amount passed on by the customer?

HeldThe Hon’ble Rajasthan AAR vide Advance Ruling no. RAJ/AAR2018-19/20 Dated- October 30, 2018 holds the transaction between Applicant and the customer for passing on specified bonus is nothing but additional discount for making early payment by the customer and is not in the nature of a ‘supply’ in accordance with GST Act, 2017. Observing that the discount offered towards early payment is not a new supply but part of the original supply between principal & customer, AAR opines that “additional discount relates to supply already made by the principal and passing on such bonus to the customers by DCA is in the nature of pure agent”. Further, states that since the said transaction is not supply by the customer, invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.

Citation: TS-697-AAR-2018-NT