Whether the incentive received by the reseller considered as trade discount? MAAAR

The Appellant ( MEK Peripherals (India) Private Limited) purchases the products from various Distributors who are registered under GST Law in their respective states. The distributors import the product from ‘‘Intel inside US LLC” and sells to Appellant. The Appellant further sells the same product to various retailers.

The Appellant has entered into agreement with “Intel inside US LLC” herein after referred to as (IIUL) under Intel Authorized Components Supplier Program (IACSP) that Appellant will receive a non-binding Plan of Record Target (POR Target). Under the Plan of Record Target (POR) the Appellant will have an opportunity to earn certain incentive as percentage of performance to quarterly goal on eligible Intel products.

The Appellant stated that as per agreement it receives incentives on completion of targets set under said agreement in Intel Authorized Components Supplier Program (IACSP)

In view of the above facts, the Appellant had filed the GST Advance Ruling Application before the MAAR on following questions:

a) Whether the Incentive received from “Intel inside US LLC” under Intel Approved Component Supplier Program (IACSP) can be considered as “Trade Discount”?

b) If not considered as “Trade Discount” then whether it is consideration for any supply?

c) If it is considered as supply than whether it will qualify as export of service?

The MAAR vide order no. GST-ARA-59 2020-21 B-56 dated 27.04.2022. has held that: -

"incentive received from IIUL under IASCP program is not trade discount. Secondly, it was held that the said amount received is in consideration of supply. Thirdly, the incentive amount received doesn’t fulfill the conditions of export of service."

Being aggrieved of the Impugned Order passed by MAAR, the present appeal is being filed before MAAAR, on basis of following the grounds:

1. The Incentive received from IIUL under Intel Approved Component Supplier Program (IACSP) is nothing but pre agreed Trade Discount
2. The incentive received by the Appellant from IIUL cannot be considered as any consideration for any supply
3. Without prejudice to the above, even if the incentives are considered as consideration for supply, even than the entire supply is export of service

MAAAR held that:

Trade Discount or not - The appellant has not come up with any additional facts rather than saying plainly that the incentive received by them are in the form of trade discount. MAAR has rightly observed 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 discount, an agreement between seller and purchasing party is a pre-requisite, the same 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.

If incentives received by them are not considered as trade discounts, then whether it is consideration of any supply?  It is evident from the contract / agreement between appellant and IIUL that the amount received under scheme is to enhance supply, to emboss Intel brand in India and to keep customer base intact in INDIA and thus implied services are performed by appellant as per the outcome based contract.

It can be conclusively held that the appellant is bound by the agreement to perform the following tasks:-

(i) They will make their best efforts to sell and market the Intel products

(ii) Assist Intel in implementing Intel’s marketing campaigns

(iii) Provide first-level technical product support.

In lieu of the aforesaid services, the payout is being accrued to the appellant and not in the form of trade discount as claimed by them but in the form of supply of marketing as well as technical support services.

Whether the supply would fulfill the condition of export of service?  In the present case, the marketing services are provided in respect of goods which are made physically available by the recipient of services (i.e. IIUL through its distributors) to the supplier of marketing services (i.e. the appellant), in order to provide the services. Therefore, as per Section 13(3)(a), the place of provision of service is the location of the supplier of services i.e. the applicant, which is in India. Hence, the impugned supply does not qualify as export of services

- LDR

Ref: No.- MAH/AAAR/DS-RM/04/2023-24 dated 13th June 2023