K.K. Polymers (Prop. Adventage Agency (P.) Ltd.)  100 taxmann.com 17 (AAR- RAJASTHAN)
a) Nature of Business and Scope of Activity of the Applicant:
There are three parties involved in the transaction i.e. Principal who is the supplier of goods, Del Creder Agent (hereinafter referred as DCA) who is the applicant also and customer who receives goods from the principal.
The applicant takes order from the customers and places these orders with the Principal (actual supplier of goods to customers and receiver of payments). Collection of payment from customers is the responsibility of DCA.
b) Payment of Due amount of goods to the Principal:
On the due date, either the customer pays to principal directly or DCA pays to the principal and in turn customer pays to the DCA.
If payment is made directly by the DCA before due date (before 10 days credit period) on behalf of customer, Principal gives additional commission to DCA as per agreement between Principal and DCA. Wherever the payment is directly made by the customer before due date (before 10 days credit period), early Payment Incentive is given to the customer as per the pricing policy of Principal.
c) What happens if customer makes the payment to DCA earlier than 10 Days
In some circumstances, customer routes the payment through DCA. The customer makes the payment to the DCA within 10 Days. Applicant (DCA) makes payment against supplies of goods on customer’s behalf and claims additional bonus from principal. The applicant then raises invoices for claiming such additional bonus and pays GST thereon. Thereafter, customer asks for the reimbursement towards early payment at a predetermined rate, as is being offered by the Principal.
Query 1:-The customer requests the applicant to make early payment to principal against the supplies and the applicant makes immediate payment. The customer also makes payment within prescribed time limit of 10 days. In this situation the applicant is required to pass on the bonus to the customer. The applicant has sought clarification whether such passing on the bonus is in the nature of any supply.
Query 2:If GST is charged by the customer on invoice for such transaction, Whether the DCA can take credit of the ITC of the GST charged on such supply?
Observation on Query 1: Transaction made between DCA and customer for passing on specified bonus given by principal is nothing but an additional discount given for early payment made by the customer to the Principal through DCA. In this case there is only one supply made by the principal to the customer of the goods supplied. The additional discount relates to supply already made by the principal and passing on such bonus to the customers by DCA is in the nature of pure agent. However, any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA has already paid GST.
Observation on Query 2: Invoices can be issued by supplier of goods and services only. When there is no supply to DCA by customer, the DCA is not entitled to take ITC of GST passed on to the DCA in any manner. Since, the said transaction is not a supply by the customer; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.
Query 1: The additional bonus passed on by the applicant (DCA) to the customer, is not in nature of a supply in accordance with GST Act, 2017.
Query 2: Since, the said transaction is not a supply by the customer; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.
Query 1: The judgement is based on the premises that the discount given by the principal is for early payment incentives to the customer. Since discount is linked to supply of goods and once excluded from value of supply on satisfaction of conditions as provided under Section 15(3)(b), such discount cannot vice versa become supply by customer to principal. This holds good in cases wherein discount is directly passed by the principal to the customer.
However, things gets a bit complicated wherein payment is routed by the customer through DCA and DCA receives the discount from the principal and reimburses to the customer. In such case, DCA is raising full invoice of the amount of incentive received from the principal and is charging GST thereon. Out of such incentive received, DCA passes the amount to the customer. The DCA has acted as an intermediary for passing of the amount received from customer to the Principal and in turn received discount which has been duly passed on to the customer and any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA has already paid GST.
For the amount passed, judgement holds that since DCA has acted as pure agent and customer has received discount which firstly relates to supply of goods by principal to the customer and secondly there is no supply of service by the customer to DCA, therefore no GST needs to be levied.
Query 2: The judgement holds that since the transaction between customer and DCA is not a supply by the customer to DCA; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.
The judgement in the first limb holds that since transaction between customer and DCA is not supply, therefore no invoice is required to be issued by the customer. However, it further goes ahead and holds that if any tax is passed on to DCA by the customer, DCA is not entitled to take ITC. This view might need reconsideration because if a supplier has wrongly or incorrectly charged tax on any invoice, how can recipient be restricted to take ITC of the same. The recipient cannot be expected to sit in the shoes of the supplier and judge what is leviable and what is not. His responsibility ends with the fulfillment of conditions as prescribed under the Act.
If any tax has been wrongly collected by the supplier then the recipient is entitled to take refund of the same and availing ITC is equivalent to availing refund. Hon’ble Punjab and Haryana High Court in the matter of Commissioner Central Excise, Chandigarh V/s M/s Guwahati Carbons Ltd dated 22nd July 2010 held that Learned counsel for the Revenue is unable to show any law that even if duty paid was in excess of the amount due, without excess amount being refunded, the assessee will be debarred from availing of the CENVAT Credit. Further in Nitco Tiles Ltd. v. CCE, Mumbai – 2007 (220) E.L.T. 827 (Tri. – Mum.), Hon’ble Tribunal observed held that the Cenvat Credit taken by the appellant was nothing but refund of the Service Tax paid by them on the services on which they were not required to pay Service Tax.