In a setback to the common market practice of trade discounts, the Authority for Advance Rulings (AAR) of Maharashtra has ruled out a goods and services tax (GST) refund in the case of post-sales discounts offered by manufacturers to dealers.
The case pertains to UltraTech Cement, which sought clarity over the possibility of GST refund in the case of discount offered to its dealers after sale. The move is expected to result in a slew of litigation and prompt the industry to re-examine the discount schemes offered to liquidate old inventories or on bulk sales.
The applicant, UltraTech Cement, cites an example where a dealer has to sell a 50 kg cement bag to the final customer at Rs 295, against the original purchase price of Rs 300. The Rs 5 rate difference is compensated for the dealer by the manufacturer.
“Based on the trade practice and past history, the dealer is aware that there will be compensation in the form of rate difference or trade discount in case of significant correction of prices,” it said. However, AAR ruled that according to GST law, the discount given after the goods have been sold has to be established in terms of agreement signed before or at the time of sale of goods.
This means that the discount to be given has to be mentioned in the terms of the agreement entered into at the time of sale. “The wordings of section 15 (3) (b) (i) of the CGST Act clearly states that the quantum of discount given after the supply of goods has taken place has to be there in the agreement. It cannot be open ended,” said AAR.