Incentive received from overseas Supplier neither Trade Discount or Export: AAR

The Authority for Advance Ruling (AAR) in the matter of M/s. MEK Peripherals India Pvt Ltd. ruled out that Incentive received from overseas Supplier neither Trade Discount or Export is Taxable under GST.

The Applicant, M/s. MEK Peripherals India Pvt Ltd is a GST registered person in Maharashtra and is a reseller of Intel products which they purchase from the from various Distributors of Intel Inside US LLC (IIUL). These products are imported by the various distributors from IIUL and sold to Applicant for further sale to various retailers. The Applicant has further submitted that they have entered into agreement with IIUL under Intel Authorized Components Supplier Program (IACSP) pertaining to a non-binding Plan of Record Target (POR Target) under which the Applicant will earn certain incentives directly from IIUL as a percentage of performance to quarterly goal on eligible Intel products.

The applicant’s contention is that the Incentive received from IIUL under Intel Approved Component Supplier Program (IACSP) should be considered as Trade Discount as per the provisions of Section 15 of the CGST Act, 2017.

As per Section 9 (1) of the CGST Act, 2017, tax is levied on the supply of goods or services on the value determined under Section 15 of the CGST Act, 2017. The scope of supply as defined under Section 7 of the CGST Act, 2017 includes supply of goods or services or both by way of sale made or agreed to be made for a consideration. Section 15 of the CGST Act, 2017 further provides that the value of supply shall be the transaction value, which is the price actually paid or payable for the supply in question.

The Question was that, “1. Whether the Incentive received from Intel inside US LLC under Intel Approved Component Supplier Program (IACSP) can be considered as Trade Discount?

2. lf not considered as Trade Discount then whether it is consideration for any supply?

3. If it is considered as supply than whether it will qualify as export of service?”

Incentive not a Trade Discount

“The only reason for the applicant to receive incentives in the subject case appears to be for increasing the business of IIUL and therefore there appears to be a supply of services in the subject case since there is no supply of goods at all between the applicant and IIUL.”

Since some amount, in the form of incentives, is flowing from IIUL to the applicant, in the absence of supply of goods between the concerned persons it appears that IIUL is paying consideration (in the form of incentives) to the applicant for receiving marketing services which would augment the sale of Intel products in the country. Therefore, the said amounts received by the applicant cannot be considered as Trade Discounts received.”

Incentive not an Export

“In the instant case, the marketing services are provided in respect of goods which are made physically available by the recipient of services (i.e IIUL, through its distributors) to the supplier of marketing services (i.e. the applicant), in order to provide the services. Therefore, as per Section 13 (3) (a), the place of provision of services is the location of the supplier of services i.e the applicant, which is in India. Hence, we hold that the impugned supply does not qualify as export of services.”

The Ruling was made by Hon’ble Rajiv Mangoo and T.R Ramnani.

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