Retailer Discounts: Prima Facie Not Consideration for Services, Demand Stayed

Issue:

Whether discounts given by manufacturers to retailers should be construed as “consideration for services rendered by the retailer to promote goods of the manufacturer,” thereby making them subject to GST under Section 15 of the Central Goods and Services Tax Act, 2017.

Facts:

The petitioner, a retailer, received discounts from various manufacturers. The Revenue Department sought to interpret these discounts as income on which GST was payable. In the impugned order, the Additional Commissioner confirmed a demand for short payment of tax and additional penalties against the assessee based on this interpretation.

Decision:

The court held that, considering the nature of the matter, discounts given by manufacturers to retailers, prima facie, could not be considered as a consideration for services rendered by the retailer to promote the goods of the manufacturer. Accordingly, the impugned order (confirming the demand) was stayed. The decision was in favor of the assessee.

Key Takeaways:

Nature of Discounts: The case centers on the fundamental nature of trade discounts. Generally, a discount is a reduction in the price of goods, not a payment for a separate service.
“Consideration” under GST (Section 15): For GST to be leviable, there must be a “supply” and “consideration” for that supply. The Revenue’s argument implied that the discount was consideration for a “service” (e.g., promotion, marketing) rendered by the retailer to the manufacturer.
Prima Facie View: The court’s prima facie observation suggests that, at first glance, the transaction looks like a price reduction rather than a reciprocal service. This implies that the burden is on the department to conclusively prove that a separate service was indeed provided and that the discount was specifically linked as consideration for that service.
Distinction Between Price Reduction and Service Fee: The court is making a distinction between a straightforward reduction in the sale price of goods (which reduces the value of taxable supply) and a payment for a distinct service.
Impact of Stay: The stay order provides interim relief to the assessee, preventing the recovery of the demanded tax and penalties until the matter is finally adjudicated. It indicates that the assessee has a strong arguable case.
Controversial Issue in GST: The taxability of various forms of discounts, incentives, and schemes between manufacturers/wholesalers and retailers under GST has been a contentious area, leading to numerous disputes and clarifications (e.g., Circular No. 92/11/2019-GST, which clarifies the treatment of various discounts). This case seems to lean towards a non-taxable interpretation for standard retailer discounts.

HIGH COURT OF DELHI

Vardhman Electronics

Additional Commissioner, CGST Delhi West

PRATHIBA M. SINGH and Rajneesh Kumar Gupta, JJ.

W.P.(C) No. 6334 of 2025
CM APPL. No. 28843 of 2025

MAY 13, 2025

Kamal Sawhney, Deepak Thackur, Ms. Aakansha Wadhwani and Rishabh Mishra, Advs. for the Petitioner. Ms. Monica Benjamin, SSC and Ms. Nancy Jain, Adv. for the Respondent.

ORDER

1. This hearing has been done through hybrid mode.

2. The present petition has been filed by the Petitioner – Vardhman Electronics under Article 226 of the Constitution of India inter alia assailing the Show Cause Notice dated 26th September, 2023 issued by the Additional Commissioner, CGST Delhi, Audit-II (hereinafter, the ‘Additional Commissioner’) as also the consequent order dated dated 30^th January, 2025 bearing No. 199/CGST WEST/ GST/ SKG/ ADC/202425 passed by Additional Commissioner, CGST Delhi West.

3. Vide the impugned order, the Additional Commissioner has inter alia confirmed the demand of short payment of tax amounting to Rs. 9,85,22,360/-and additional penalties.

4. The allegation in this petition is that the Petitioner is a retailer selling various household appliances and other electronic goods. The Petitioner is given discounts by various manufacturers. However, the Revenue Department seeks to construe such discounts as an income on which Goods and Services Tax (‘GST’) is payable.

5. The manner in which the Revenue Department interprets it, is to say that the giving of a discount is in fact a service being rendered by the retailer to promote the goods of the manufacturer and hence the same is liable for GST.

6. Issue notice. Notice is accepted by Ms. Monica Benjamin, ld. SSC appearing for the Respondents.

7. Considering the nature of the matter, this Court is of the opinion that discounts given by manufacturers to retailers, prima facie, cannot be considered as a consideration for services rendered by the retailer. Accordingly, the impugned order shall remain stayed.

8. List before the Joint Registrar on 18^th July, 2025.

9. List before the Court on 25^th September, 2025.