Indirect tax board removes circular on GST, but confusion remains

The indirect tax board had removed a “controversial” circular that imposed goods and services tax (GST) on post-sale discounts by dealers, but it has done little to clear the confusion around the many issues that arose with the circular.

In June, the Central Board of Indirect Taxes and Customs (CBIC) had issued a circular which said that dealers will have to pay 18 per cent GST on the post-sale discount that they get from the suppliers of goods, if the supplier asks them to pass on the concessions to the end consumer.

The circular came out with different situations where GST should be paid and where it should not.

For instance, imagine that a company sells a car to a dealer for Rs 10 lakh and later gives a discount of Rs 50,000. In doing so, the firm did not put any obligation on the dealer to pass on the benefit. So, the dealer need not pay any GST on Rs 50,000. However, if the company asks the dealer to pass on the benefit to the customer, then the dealer has to pay GST on the entire amount, including Rs 50,000.

 

This had irked industry, particularly the auto sector, which has already been reeling under the pressure of subdued demand.

The Confederation of Indian Industry (CII) had said this circular violated the cardinal principle of GST that the tax cost is to be borne by the ultimate consumer.

“This principle means that the supply of goods or service should suffer the tax only to the extent of consideration paid by the ultimate consumer,” the CII had said, demanding that this provision in the circular be changed.

It said additional discounts are generally given to liquidate the old inventories or push products under weak market conditions.

Following the hue and cry, the CBIC recently said: “Numerous representations were received expressing apprehensions on the implementation of the said circular. In view of these apprehensions… the Board… hereby withdraws, ab initio, the circular.”

But even after the withdrawal of the circular, the controversy over it has not ended. Experts demanded that a clarification be issued that there would be no GST on post-sale discounts as field officers continue to harass dealers.

Abhishek Jain, partner at EY, said industry expects that with the withdrawal of the circular, the government has accepted the industry’s position and this would put an end to the investigations and litigation at the field level.

Also, there is the issue of input tax credit.

ClearTax chief executive officer Archit Gupta said now there is confusion over how the situation of post-sale discounts should be dealt with.

The tax on the original invoice could have still been claimed as input tax credit and be adjusted using the credit note. This is now not perceived so by the withdrawal of the circular, he said. 

“The festive season is here, and hence, there is a dire need for the CBIC to come back with a clear message for the businesses and the dealers in the supply chain to deal with the circular,” he said.