Page 9 - Chapter 6_Value of Supply

Q.8
Binaca Electronics Ltd. (hereinafter referred to as BEL) is engaged in manufacturing televisions. It is
registered in the State of Haryana. It has appointed distributors across the country who sell the televisions
manufactured by it. The maximum retail price (MRP) printed on the package of a television is ₹ 12,000. The
applicable rate of GST on televisions is 18%. BEL dispatches the stock of televisions to its distributors
ordered by them on a quarterly basis.
In order to promote its sales, the Sales Head of BEL has formulated a sales promotion scheme on 1st April.
Under this scheme, BEL offers a discount of 10% (per television) on televisions supplied to the distributors if
the distributors sell 500 televisions in a quarter. The discount is offered on the price at which the televisions
are sold to the distributors (excluding all charges and taxes).
It appoints Shah Electronics (an unrelated party as per GST Law) as its distributor in Haryana on 1st April
and dispatches 750 televisions on 8th April as stock for the quarter April-June. BEL has sold the televisions
to distributor - Shah Electronics at ₹ 8,400 per television (exclusive of applicable taxes). Shah Electronics has
requested BEL for a special packing of the televisions delivered to it for which BEL has charged ₹ 1,200 per
television.
Shah Electronics places a purchase order of 1,000 televisions with BEL for the quarter July-September. The
distributor reports sales of 700 televisions for the quarter April-June and 850 televisions for the quarter July-
September. The discount policy offered by BEL as explained above is also available to Shah Electronics as per
the distributorship agreement
While Shah Electronics reverses the input tax credit availed for the quarter July- September, it has failed to
reverse the input tax credit availed for the quarter April-June
Examine the scenario with reference to section 15 and compute the taxable value of televisions supplied by
BEL to Shah Electronics during the quarters April-June and July-September assuming the rate of tax
applicable on the televisions as 18%. [Study Mat] [CA Final MTP April 23] [CA Final RTP Nov 2020]
Answer:- Legal provision:
1. Pre-Supply Discount (Section 15(3)(a))
† A discount given before or at the time of supply is deductible from the transaction value.
† It must be recorded in the invoice to be excluded from the value of supply.
2. Post-Supply Discount (Section 15(3)(b))
A discount given after the supply is also deductible if:
† Pre-agreed – The discount policy was part of an agreement made before supply.
† Linked to specific invoices – The discount can be traced to relevant invoices.
† ITC Reversal – The recipient reverses Input Tax Credit (ITC) attributable to the discount.
3. Case Analysis (Shah Electronics & BEL)
† BEL offers a 10% discount to Shah Electronics for meeting the sales target in April-June & July-September
quarters.
† Since the sales targets were met after the stock was dispatched, the discount qualifies as a post-supply
discount.
† The discount is deductible from the value of supply as it meets all conditions:
A Pre-agreed policy (known before supply).
A Linked to specific invoices (for TVs supplied in the respective quarters).
A Shah Electronics will reverse ITC on the discount as per the document issued by BEL.
Discussion & Conclusion:
Ü In the given case, Shah Electronics is entitled for 10% discount on televisions supplied by BEL for the quarters
April-June as well as July-September as it has sold more than 500 televisions in each of these quarters.
Ü However, since the sales targets are achieved after the entire stock for the respective quarters of April-June and
July-September has been dispatched, the discounts on the televisions supplied to Shah Electronics for the
quarters of April-June and July-September is a post-supply discount.
Ü Such post-supply discount will be allowed as a deduction from the value of supply since the discount
policy was known before the time of such supply and the discount can be specifically linked to relevant

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