18% GST Payable On Target-Based Incentive Received By Intel Reseller: AAAR

The Maharashtra Appellate Authority of Advance Ruling (AAAR), while upholding the Order of the AAR, ruled that 18% GST is payable on target-based incentives received by Intel resellers.

The bench of D.K. Srinivas and Rajeev Kumar Mital has observed that The incentive received by the reseller from a US company is not a "trade discount."

The appellant is a reseller of Intel Products. The Appellant is having their main place of business in Maharashtra. The Appellant purchases the products from various Distributors who are registered under GST in their respective states. The distributors import the product from "Intel inside US LLC" and sell to Appellant. The Appellant further sells the same product to various retailers.

The appellant has entered into an agreement with Intel inside US LLC" under the Intel Authorized Components Supplier Program (lACSP) that the appellant will receive a non-binding Plan of Record Target (POR Target). Under the Plan of Record Target (POR), the appellant will have the opportunity to earn certain incentives as a percentage of performance against the quarterly goal on eligible Intel products.

The appellant stated that, as per the agreement, it receives incentives on the completion of targets set under the Intel Authorized Components Supplier Program (IACSP).

The appellant sought an advance ruling on the issue of whether the incentive received from "Intel Inside US LLC" under the Intel Approved Program Component Supplier Program (ACSP) can be considered a "trade discount.".

The Maharashtra Authority of Advance Ruling has held that the Appellant purchases the goods from the distributor and is not receiving discounts from the distributors. Therefore, there is no supply of goods or services or both from US LLC to the Appellant, there was no sale transaction of goods between the Appellant and from US LLC. Hence the incentives received by the Appellant from US LLC will not be covered under Section 15(3) of CGSTAct, 2017. The supply of goods in respect of which the incentives are purported to be given are rendered by the distributors and not by US LLC. So, the provision of the incentive received from IIUL under Intel approved Component Supplier Program (IACSP) cannot be considered a "Trade discount".

The appellant contended that the nature of incentives would remain "trade discount," and therefore they would not take the character of a consideration against the supply of any services.

The AAAR has noted that to qualify as a trade discount, the same must be known prior to the removal of the goods. Also, there should be a change in the taxable value of the supply resulting in the reversal of the ITC. However, in the present case, the quântum of discount is not known at the time of removal of goods rather that is linked to the purchases done by the appellant from the authorized distributors of US LLC.

The AAAR found that no sale transaction of goods has taken place between the appellant and hence incentives will not be covered under the provisions of Section 15(3) of CGST Act, 2017. For the incentives to qualify as trade discounts, an agreement between the seller and purchasing party is a prerequisite, which is missing between the distributor and the appellant. Thus, the incentive received from the manufacturer is separate from the transaction undertaken by the appellant with the distributors.

Appellant’s Name: M/s MEK Peripherals India Private Limited Versus

Date: 13/06/2023

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