Appellate Authority for Advance Rulings, Maharashtra (‘AAAR’) in the matter of IN RE: M/S. MEK PERIPHERALS INDIA PRIVATE LIMITED - 2023 (6) TMI 777 - APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA “the Appellant” has upheld the ruling issued by AAR inter alia holding that incentive received by reseller of intel products for completion of sales target cannot be considered as Trade discount and it shall be treated as consideration for services rendered.
A. FACTS OF THE CASE
- The Appellant is a reseller of Intel products.
- The Appellant purchases the products from various distributors who have imported the product from “Intel inside US LLC” (IIUL) and thereafter sells the same product to various retailers.
- The Appellant has entered into an agreement with IIUL whereby it receives incentives on completion of targets set out under the agreement.
B. QUESTIONS BEFORE THE AAR
- Whether the Incentive received from “Intel inside US LLC” under Intel approved Component Supplier Program (IACSP) can be considered as “Trade Discount”?
- If not considered as “Trade Discount” then whether it is consideration for any supply?
- If it is considered as supply than whether it will be qualified as export of service?
C. CONTENTION OF THE APPLICANT
- That the nature of incentive received from IIUL under IACSP is nothing but pre-agreed trade discount and therefore it would not partake a character of a consideration against supply of any services.
- That even if it is considered as supply of services, then it shall be an export of services and section 13(3)(a) do not have any applicability to this service as IIUL does not make any goods physically available to us for providing the services.
D. RELEVANT LEGAL PROVISIONS REFERRED
E. OBSERVATION AND RULING BY THE AAAR
Ruling by Authority of Advance Ruling (AAR)
- There is no supply of goods or services or both from IIUL to the applicant and hence the ‘incentives’ received will not be covered under the provisions of section 15(3) of CGST Act, 2017
- 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. Therefore, as per section 13(3)(a) of IGST Act, 2017, the place of provision of services is the location of supplier of services which is in India. Hence, the impugned supply does not qualify as export of service.
Observations of AAAR
- The incentive amount is not flowing from the distributor rather than from actual manufacturer and there is no agreement as such with the distributor. For the incentives to qualify as trade discount, an agreement between seller and purchasing party is a pre-requisite, the same is missing between the distributor and appellant.
- That the Appellant is bound by the agreement to perform the following tasks:-
- They will make their best efforts to sell and market the Intel products
- Assist Intel in implementing Intel’s marketing campaigns
- Provide first level technical product support
In lieu of aforesaid services, the payout is being accrued to the appellant and not in the form of trade discount as claimed by them but in the form of supply of marketing as well as technical support services.
- 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 Appellant), in order to provide the services. Therefore, as per Section 13(3)(a), the place of provision of service 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.
Order by AAAR
- We confirm and uphold the Advance ruling pronounced by AAR and appeal filed by the Appellant is hereby dismissed.
F. Our comments
AAAR has dealt with the legal provisions in depth pertaining to valuation of supply and place of supply. In our view, it has correctly ruled so far as to state that ‘incentives’ do not tantamount to ‘trade discount’ and would be deemed as consideration for supply of services. However, the supply of captioned services should have been covered under section 13(2) of IGST Act, 2017 rather than under section 13(3)(a) as being done by AAAR. As rightly contended by Appellant, in this case, the recipient of service (IIUL) has not made physically available any goods to the supplier of services. The goods were purchased by Appellant from distributors for resale to retailers and thus were owned by Appellant. Further, services provided were also not in respect of these goods and thus section 13(3)(a) would not be applicable in these circumstances.
(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).
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