AAAR Maharashtra – Taxability of Incentive on Achieving Target Sales

• The Appellant operates as a reseller of Intel products purchased from various distributors of Intel US in India
• The Appellant entered into an agreement with Intel US wherein it was entitled to receive incentives upon achieving the target sales
• The Appellant sought an advance ruling to determine whether the incentives received can be considered as a trade discount or a consideration for any supply. Further, in case the same is considered as a supply, whether the transaction can qualify as an ‘export of services’
• The Authority for Advance Ruling, Maharashtra (‘the AAR’) held that the incentives received by the Appellant cannot be considered as a trade discount. Further, the AAR held that the incentives are a consideration for supply of marketing services would not qualify as ‘export of services’
• Being aggrieved by the ruling of the AAR, the Appellant filed an appeal before the Appellate Authority for Advance Ruling, Maharashtra (‘the AAAR’)

• Whether the incentives received from Intel US can be considered as a trade discount?
• If the incentives cannot be considered as a trade discount, whether it is a consideration for any supply?
• If the incentives are consideration of any supply of services, whether it qualify as ‘export of services’?

• Where the discount is not mentioned on the invoice, it can be reduced from the taxable value of supply value if:
  • The supplier and the buyer must have entered into an agreement that includes provision for the discount
  • Discount is linked to a specific invoice
  • Any input tax credit attributable to the discount must be reversed by the buyer/ recipient of the supply
• The incentives received from Intel US cannot be treated as trade discount on account of the following:
  • For an incentive to qualify as a trade discount, an agreement between the seller and the purchaser is pre-requisite. In the present case, the incentive to the Appellant is not flowing from the seller (i.e., the distributor) rather from Intel US
  • There is as such no agreement in place between the Appellant and the distributor for such incentive
• The agreement between the Appellant and Intel US indicates that it is an outcome-based contract, where the incentive payment is entirely dependent on achieving specific outcomes related to the purchase and sale of Intel products. Further, the Appellant is obligated to perform the tasks such as: (i) making efforts to sell and market the intel products (ii) assisting in implementing intel marketing campaigns (iii) providing technical support
• Therefore, the payout is being accrued to the Appellant not in the form of a trade discount rather as a consideration for the supply of marketing and technical support services
• The marketing services are provided in respect of goods which are made physically available by the recipient of services (i.e., Intel US through its distributors) to the supplier of marketing services (i.e., the Appellant), in order to provide the marketing services
• As per Section 13(3)(a) of the Integrated Goods and Services Tax Act, the place of provision of service for the above services is the place where the services are performed by the Appellant, which is in India. Therefore, the said marketing and technical services does not qualify as ‘export of services’.