DISCOUNT / INCENTIVE NOT LIABLE TO SERVICE TAX / EXCISE DUTY

[Mr. M. GOVINDARAJAN]

          In the course of business granting discount either in the form of trade discount or cash discount is normally seen to encourage the customers to settle the amount in time and to purchase in huge quantity.   The manufacturer or service provider may grant discount to their clients or may receive discounts in the course of purchase.   In addition to discount incentives may also be granted if the target fixed is exceeded.  Such discount/incentive will not form part of assessable value for levying service tax or excise duty and hence no service tax or excise duty is leviable on such discounts/incentives.  The said connotation is confirmed by some of the tribunals which will be discussed in this article.

          In 'Euro RSCG Advertising Limited V. Commissioner of Service Tax, Bangalore' 2007 -TMI - 1721 - CESTAT, BANGALORE the tribunal held that cash discount is an income from payment of bills in advance and not from services rendered to clients and does not attract service tax.    In addition to this the appellants received incentives from certain publications after they reached certain targets of advertising business given to them.   This incentive is called as target incentive.  It is in no way connected to the service rendered to the clients nor is billed to clients.

          In 'Kerala Publicity Bureau V. Commissioner of Central Excise' 2008 -TMI - 2534 - CESTAT, BANGALORE the tribunal held that incentives are collected from media.   Revenue considered their receipts as extra commission and proceeded to levy service tax.   Incentives in the form of discounts are not leviable to service tax and only charges on advertising charges are leviable.

          In 'Mccann Erickson (India) Private Ltd., V. Commissioner of Service Tax, Delhi' 2008 -TMI - 4235 - CESTAT NEW DELHI the tribunal held that the basic point which should be borne in mind is that service tax is levied on the gross amount received by the service provider from the recipient of the service for the services rendered.   In this case the appellant is the service provider.   The appellant being advertisement agency rendered advertising services by engaging print, electronic media etc., The tax authorities should see whether the appellants had discharges duty liability on the gross amount received from their clients.   In this case the various media are not the clients of the appellant.  If the media gives 15% discount to the appellant, the amount has nothing to do with the gross amount received by the appellant from their clients to whom they rendered advertisement services.   Therefore there is no logic in demanding service tax on the discount of 15% received by the appellant from print media.

          In 'Commissioner of Service Tax, Mumbai V. Reliance Communications Ltd.,' 2008 -TMI - 30438 - CESTAT MUMBAI the respondents were engaged in providing services under the category of telephone services, on line information and database access and retrieval services, leased circuits etc.,   The respondents filed the refund claim on the ground that they have paid the service tax on Maximum Retail Price (MRP) of the recharge coupon vouchers for their prepaid services but the recharge vouchers had actually been sold to the distributors at a discounted price from the MRP and some had also been distributed free of cost to distributors/operators.  The claim was filed on the ground that the money value of the discount given on the recharge vouchers had not been received by the respondent and hence service tax is not payable on those as per Explanation (2) of Sec. 67 of the Finance Act, 1994 and Rule 6 of the Service Tax Rules, 1994.   The refund claim was rejected on the ground that the invoices submitted in support of the claim were of Reliance Communications Infrastructure Ltd., ('RCIL' for short) and not respondents viz., Reliance Communications Ltd., ('RCL' for short).

          The tribunal held that RCIL was authorized by RCL to issue invoices on their behalf.   It is also undisputed that recharge coupon vouchers were sold by the RCIL to the distributors at a value which is less than that is printed on them.   If that be so, it is the fact the RCIL has recovered only discounted value from the distributors.   Provisions of the Finance Act, 1994 are that the service tax liability on a service provider is only for the amount which he gets paid.

          The tribunal further held that RCIL is a service provider and having paid the service tax liability on the entire MRP of the recharge coupon vouchers they are eligible for the amount of the refund claim on the amount which is not realized by them from their distributors.

          In 'Brown Kraft Industry Ltd., V. Commissioner of Central Excise, Thane-II' 2007 -TMI - 1133 - CESTAT, MUMBAI the appellants are the manufacturers of corrugated boxes/tubes.   They were not reversing the excess modvat/cenvat credit availed on the raw materials because of the trade discounts passed on by their suppliers at a later stage.   It is alleged by the department that after giving the discount the transaction values changed and resulted in payment of reduced duty.   This amounted to excess credit passed to the appellant to that extent of differential duty calculated on the discount amount.

          The appellant contended that the trade discount depends upon various commercial aspects.   It may be given before the assessment of the goods to the payment of duty or may be given after payment of duty depending upon the terms and conditions mutually agreed between the suppliers and the buyers.  In certain cases trade discount is considered, for example, it may be related to the quantity purchased/dispatched, the terms of payment or the value of sales/purchase to be decided at the end of a specified period.   Such discounts are given on the price inclusive of duty and taxes without affecting the assessable value or duty paid.  The trade discount was given after the clearance on payment of duty and the assessee had in fact received less payment for his goods.   There is no loss of duty to the department.   The trade discount was given after the payment of duty without reducing the assessable value claiming any refund by the assessee.