GST Demands Rs 2500 crs from Coca Cola
Earlier this year, GST authorities sent a
notice demanding Rs 2,500 crore from Coca-Cola, which has challenged in the demand
in the Bombay High Court
·
Distributors
were giving discounts to suppliers after which Coca-Cola was compensating them.
·
The
court on April 1 stayed the proceedings and asked the tax department for
replies.
·
Coca-Cola
is undervaluing the supply by deducting discounts from the value and the
discounts are extended to distributors for past sales.
·
The
revenue department is arguing based on Section 15(3) (A), which allows
discounts to be provided only where it is offered for current supplies.
Discounting
practices adopted by fast moving consumer Good (FMCG), auto spares and consumer
durable companies face uncertainty due to a goods and services tax (GST) notice
sent to beverage maker Hindustan Coca-Cola Beverages.
Earlier
this year, GST authorities sent a notice to Coca-Cola, demanding Rs 2,500 crore
in unpaid taxes. Hindustan Coca-Cola Beverages is the Indian subsidiary of the US-based
drinks giant.
GST
authorities alleged that the distributors were giving discounts
to suppliers after which Coca-Cola was compensating them.
Earlier
this month, Coco-Cola moved the Bombay High Court seeking quashing of the notice.
The court on April 1 stayed the proceedings and asked the
tax department for replies.
The
revenue department is of the view that Coca-Cola is undervaluing
the supply by deducting discounts from the value and the discounts are extended
to distributors for past sales. This amounts to GST evasion, the tax department
has alleged.
It
is a common practice among companies to offer several types of discounts in case
of prior sales by distributors, legal experts say. The move is usually aimed at
rewarding distributors who are high performers.
“If
this interpretation is allowed to stand, the fallout will be massive: retrospective
tax demands, chaotic litigation, and significant disruption across industries.
At
the heart of the dispute is the interpretation of Section 15(3) of the CGST Act
which lays guidelines for discounting and calculating the value of taxable supply.
Any
discount offered by a company to the distributor needn’t be included in the value
of taxable supply if it fulfils certain conditions. If such supplies are not included
in the value, it reduces the amount supplied and leads to lower GST.
Coca-Cola
is relying on another provision, Section 15(3) (B), which allows for discounts to
be provided even after supply, provided it was calculated based on a pre-existing
agreement.
“A
combined reading of Section 15(1) and Section 15(3) does not, prima facie, support
the allegation of tax evasion. Emphasis must be placed on Section 15(1), which unequivocally
provides that the transaction value — that is, the price actually paid or payable
for the supply of goods or services where the supplier and recipient are not related
and the price is the sole consideration — shall be the taxable value. “Hence, the
mere offering of such conditional discounts, without evidence of any related party
transactions or artificial price suppression, cannot by itself be considered an
act of tax evasion.”
Legal
experts say post-sale discounts to dealers and distributors are covered under the
credit note provisions under the GST law. Post-sales discounts cannot be construed
as services under the GST law.
If
the GST authorities have a different view, ideally, they should have initiated a
consultative process. “Unsettling the settled market practice is not a good precedent,”
Singhania said.