FMCG distributors face GST scrutiny for post-sale discounts
The authorities have asked why GST was not paid on these discounts, treating them as services by distributors.
NEW DELHI: Coca-Cola India’s bottling partner Hindustan Coca-Cola Beverages (HCCB) and distributors of FMCG and consumer durable firms have come under the lens of the goods and services tax (GST) authorities over so-called post-sale discounts offered by manufacturers, said a person familiar with the matter.
The authorities have asked why GST was not paid on these discounts, treating them as services by distributors. In some cases, authorities have sought sales details for the past five years from distributors.
That’s stumped the industry for which such discounts are commonly used to promote sales, prompting it to lobby the government for relief.
A spokesperson for HCCB, which accounts for two-thirds of Coca-Cola India’s volumes, said the company operates in “full compliance” with regulations. “It is critical to note that none of the past assessments, nor the judicial precedents on this issue, have treated the said expenses as being in the nature of any ‘service’ rendered by the distributors to the company,” an HCCB spokesperson said in an email.
HCCB produces Coca-Cola and Sprite soft drinks, Minute Maid juices and Kinley water at 18 factories.
“With the coming of GST in 2017, which subsumed all levies on goods and services under the GST, HCCB continued to do business on the same basis, and hence continued to treat discount schemes, deductible from the value on which GST is leviable, as a supply of goods,” the spokesperson said.
The company has met Directorate General of Revenue Intelligence officials and presented its arguments on the subject, he said. “We are standing by for any further clarifications and discussions that may be required,” the spokesperson said.
“As regards the contention of the Directorate General of Goods and Services Tax, HCCB offers to its distributors various types of discounts, price-offs, rate rebates and promotions under various schemes and nomenclatures to promote the sale of products (referred to as discount schemes).”
These take the form of additional margins, allowances and redistribution margins related to volumes. They are separately given as credit notes, on which GST is not paid. Tax authorities have questioned the discounts, calling them subsidies. Their contention is that this becomes a part of the consideration in the hands of distributors, requiring them to pay tax on a higher amount.
Tax experts disagree with this contention. “Fundamentally, the nature of discount doesn’t change basis the GST adjustment and where the transactions happen on a principal to principal basis, there is hardly any scope for services provided by the dealer to the manufacturer,” said Pratik Jain, national leader, indirect taxes, PwC.
In any case, even if GST is levied, it would largely be revenue neutral as the manufacturers will be entitled for input credit, Jain added. The industry has told the government that post-sale discounts should not be treated as a consideration for services provided by distributors to manufacturers. They also want the inclusion of post-sale discounts in any amount paid by the manufacturers to distributors or retailers for reduction in the price of products, in line with the schemes offered by the manufacturer to promote sales.
“Ideally, the amounts passed on to dealers and distributors are nothing but post-sale discounts which are clearly covered under the credit note provisions. The allegation that these amounts represent a service seems untenable,” said Rashmi Deshpande, partner, Khaitan & Co. “These price-offs extended to distributors on account of reduction in prices of products are purely in the nature of post-sale discounts and treatment of such discounts as a ‘subsidy’ is not in consonance with the provision of law.”
Source- Economic Times.
The post FMCG distributors face GST scrutiny for post-sale discounts appeared first on GST Station.
Click here for more...
from #Bangladesh #News aka Bangladesh News Now!!!