Judgment Update | VAT not payable by dealers on discounts received from manufacturers
The recent Madras High Court judgment in the case of Kun Motor Company Private. Ltd. v. ACCT, 2020 (2) TMI-364-Madras HC.
In this case, the taxpayer was a car dealer who received trade discounts from the manufacturer. Trade discount was based on the number of cars sold by the dealer in retail market. The issue was whether trade discounts received from manufacturers need to be included in taxable turnover of dealers for discharging VAT liability.
The High Court noted that there were two independent transactions, one between manufacturer and dealer and other between dealer and its customer. It held that trade discounts offered by manufacturer to dealer do not enhance the taxable value of cars sold by dealer to its customers and thus cannot be included in the taxable turnover of dealer.
NITYA’s Comments: This judgment is correct as discounts cannot be termed as consideration received by dealer from a third person. This is relevant under GST regime as well. The issue cropped up under GST with issuance of Circular No.105/24/2019-GST dated June 28, 2019 wherein the CBIC inter-alia clarified that liquidation discounts given by manufacturer to dealer to offer reduced prices to customer, form an additional consideration for dealer. This Circular was later withdrawn through Circular No.112/31/2019-GST dated October 3, 2019.
Important to note that the Authority for Advance Ruling in the case of Santhosh Distributors, 2019-VIL-416-AAR held that discounts received by distributor / dealer from the manufacturer shall be included in the taxable value of supply between distributor / dealer and its customers and thus liable to GST. The ruling was pronounced before the withdrawal of Circular and hence irrelevant in present date.