XYZ Pvt. Ltd. give incentive by way of cheque to certain dealers on reaching sales target of certain items. 1) Are the dealers required to pay GST on this amount received? 2) If yes, can XYZ claim ITC against the GST charged by the dealers?
In our view Discounts/incentives on achieving the sale target can be granted by way of issuance of credit notes by the supplier , provided these are given as per agreement already in place. In such a case the supplier may issue a tax credit note u/s 34(1) of the CGST Act, 2017 and seek tax adjustment subject to fulfilment of prescribed conditions including reversal of ITC by receipient.
Alternatively the supplier may issue a commercial credit note without seeking any tax adjustment and therefore not warranting consequent reversal of input tax credit.
In any case pure incentive should not be regared as supply of service by dealers. However depends on actual facts of the case.
Team Clearmytax.in