Explaining the clarifications, Abhishek Jain, partner at EY, said suppose a company sold a car to dealer for Rs 10 lakh but later, it gave Rs 50,000 discount to the dealer. The firm did not put any obligation on him. So, the dealer need not pay any GST
on Rs 50,000. However, if the company asks the dealer to do any marketing or promotional activity, then the dealer has to pay the GST on Rs 50,000.
If the company asks the dealer to pass on the benefits to the consumer, then the dealer will have to pay the GST on the higher value of items and not on the amount at which he sold car. If the margin is Rs 25,000 and he gives discount of Rs 50,000 to the consumer and sells the car at Rs 9.75 lakh, he will have to pay the GST on Rs 10.25 lakh.
The CBIC also clarified that dealers would be eligible for input tax credit (ITC) on the whole amount of taxes paid, even when discounts are paid post-sale. This clarification is opposite to what Maharashtra authority for advance ruling (AAR) said in the MRF Tyres case.
"This clarification is quite welcome for businesses. However, other clarifications would obligate businesses to re-look at their current tax positions and legally re-evaluate the GST positions," Jain said.
The CBIC also came out with another circular, clarifying input tax credits on goods bought by foreign tourists from duty free shops while leaving India. It said the retailers selling goods of Indian companies to these tourists are eligible for input tax credits.
The circular also said the GST would not be levied on the calamity cess to be imposed by Kerala from next month for rehabilitation works post-floods in the state.