The government in clarification has declared that Advertisements or special promotion drives undertaken by the dealer of a company will be now considered as a service, and would be taxed.
As per this clarification, Companies that offer additional discounts to their dealers as incentives and ask them to conduct advertising campaigns to promote their brand/products. These incentives given to dealers shall now be taxed. Dealers will charge GST on the service they provide to companies, for which companies will be eligible to claim ITC.
Taxability of incentives or discounts offered to dealers for undertaking promotional activities would compel organizations to relook their tax liabilities.
The Central Board of Indirect Taxes and Customs has also clarified that if companies offer discounts to dealers for increasing of sales, to be passed on to customers, GST will be payable on the amount including the discount value. For example, if a supplier offers a discount of ₹ 500 to a dealer which was not known at the time of sale, and mandates the dealer to pass it on to the consumer, the dealer will be liable to pay tax on the value of goods including the discount of ₹ 500.
The clarification also said that if a company issues a credit note to a dealer, the latter would be able to claim full ITC on the total tax paid on supply, including the amount for which a credit note has been issued. For example, if a dealer purchases goods worth ₹ 10,000 from a supplier and pays 18% GST (₹ 1,800), and later gets a discount of ₹ 1000 from the supplier in the form of a credit note, he/she will be able to claim ITC on ₹ 1,800. Previously, the industry had doubts if businesses would be eligible to claim any credit on the amount for which a credit note has been issued.
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