Incentives received for market services within India cannot be considered as trade discount nor export service.

[CA Bimal Jain]

The AAR, Maharashtra in the matter of M/s. MEK Peripherals India Pvt. Ltd., [2022 (4) TMI 1344 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] has held that incentives received by the Indian reseller of the products for providing marketing services within India for increasing the business of foreign company cannot be considered as trade discount nor it is an export service.

Facts:

M/s MEK Peripherals India Pvt Ltd. (“the Applicant”) is a reseller of Intel products imported from the various distributors of Intel Inside US LLC (“IIUL”) and further sell to various retailers.

The Applicant entered into agreement with IIUL under Intel Authorized Components Supplier Program (“IACSP”) pertaining to a non-biding Plan of Record Target (“POR Target”) under which the Applicant earns certain incentives directly from IIUL as a percentage of performance to quarterly goal on eligible Intel products.

The Applicant submitted that the incentives received from Intel should be considered as trade discount as per Section 15 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and thus would not be liable to tax.

Issues:

1. Whether the incentive received from IIUL under IACSP can be considered as trade discount or consideration against supply?
2. Whether the transaction by the Applicant will be considered as supply of service and will qualify as export of service?

Held:

The AAR Maharashtra, in Advance Ruling No. GST-ARA-59/2020-21/B-56 dated April 27, 2022 held as under:

• Noted that, the Applicant purchases the goods from the distributors and is not receiving discounts from the said distributors. Therefore, there is no supply of goods or services or both from IIUL to the Applicant and hence, the incentives received by the Applicant from IIUL will not be covered under the provision of Section 15(3) of the CGST Act.
• Observed that, the only reason for the Applicant to receive incentives are for increasing the business of IIUL and therefore, there appears to be a supply of services, since there is no supply of goods at all between the Applicant and the IIUL.
• Held that, the incentive received from IIUL under IACSP cannot be considered as trade discount.
• Stated that, in the absence of supply of goods, the 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, there appears to be a supply of services.
• Opined that, the marketing services are provided against goods which are made physically available by the recipient of services i.e. IIUL, through its distributors to the Applicant.
• Further held that, as per Section 13(3)(a) of Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) the place of provision of services is the location of the supplier of services i.e., the Applicant, who is in India. Thus, the supply of services does not qualify as export of services.