Discount Linked To Subsidy Alone Can Form Part Of “Transaction Value”: Madras High Court

The Madras High Court has held that a discount linked to the subsidy alone can form part of the “transaction value.”.

The bench of Justice C. Saravanan has observed that a discount by itself will not qualify as a subsidy. However, a discount offered by a distributor, a supplier, or the manufacturer to the buyer or recipient simplicitor cannot form part of the “transaction value” unless such a discount is offered on account of the subsidy for supplies by a third party.

The petitioner is engaged in the retail sale of mobile phones. The department issued notices to the petitioner in DRC-01 for the respective assessment years on December 16, 2022, followed by a reminder dated January 1, 2023, February 16, 2023, and March 3, 2023.

The petitioner had given a reply and submitted it to the office of the respondent on February 14, 2023. A personal hearing was held, pursuant to which the impugned orders have been passed by the respondent, confirming the proposals contained in the DRC-01.

In the orders, it has been concluded that a discount on the value of supply can be allowed only in the cases specified in Section 15(3)(a) and (b) of the respective GST enactments. It has been concluded in the orders that the wording of Section 15(3)(b) of the respective GST enactments clearly stated that the value of supply shall not include any discount, which is given after the supply has been effected.

The petitioner submitted that as per Section 15 of the CGST Act, 2017 and the TNGST Act, 2017, amongst the non-related parties, the transactional value shall be the value on which GST is levied. The GST is levied and paid on the entire invoice amount, which includes the volume discount. As the amount of volume discount is already part of the transactional value as reflected in the invoice and GST is computed on such transactional value, the volume discount cannot be added to the invoice value and levy GST thereon. Doing so would mean taxing the same amount twice, and the department has no jurisdiction to tax the same amount again. The department has erred in levying GST on the volume discount amount once again under the pretext that its inclusion is covered under Section 15(2) of the CGST Act, 2017/TNGST Act, 2017.

The department contended that the petitioner has an alternate remedy before the Appellate Commissioner, and therefore, the petitioner has to exercise the remedy only before the Appellate Commissioner under Section 107 of the CGST/SGST Act on merit. The writ petitions are not maintainable as the petitioner has an alternate remedy under Section 107 of the respective GST enactments that have also been mentioned in the preamble to the respective orders.

The court noted that under the scheme of the respective GST enactments of 2017, each instance of supply of goods or services is chargeable to tax under Section 9. The expression “supply” has been defined in Section 7 of the respective GST Enactments, 2017. Section 15 of the respective GST enactments of 2017 prescribes a mechanism for "valuation." The value of a supply of goods, services, or both shall be the transaction value. Transaction value is the price actually paid or payable for the said supply of goods or services, or both, where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Sections 15(2) and 15(3) of the respective GST Enactments of 2017 indicate what can form part of the supply and when the value of the supply shall not include any discount.

The court held that where the supplier offers discounts to the buyer or recipient, such discounts cannot form part of the “transaction value” of the buyer or recipient on further supply to his client or customer, as the case may be.

"Unless the discounted price itself was on account of the subsidy, as a result of which the supplier would have been compensated without including the “transaction value” in the invoice, the question of adding such value to the transaction value of the petitioner cannot be countenanced,” the court said.

Counsel For Petitioner: S.Sathyanarayanan

Counsel For Respondent: Amirtha Poonkodi Dinakaran

Case Title: M/s.Supreme Paradise Versus Assistant Commissioner (ST)

Citation: 2024 LiveLaw (Mad) 61

Case No.: W.P.Nos.13424, 13427, 13429, 13433 and 13435 of 2023 and W.M.P.Nos.13098, 13099, 13102, 13103, 13104, 13105, 13110, 13111, 13112 and 13114 of 2023

Click Here To Read The Order