GST

Car dealers on taxman’s radar over discounts & freebies to customers

I-T dept is probing whether the tax treatment of discounts during transition to GST was done properly.

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Dealers of major car companies, including Maruti Suzuki, Honda, Hyundai, Toyota and Tata Motors, have been issued preliminary enquiry letters, said a person with direct knowledge of the matter.
MUMBAI: The indirect tax department is scrutinising discounts and freebies offered to customers by major car dealers across the country on suspicion that they may have availed input tax credit on those freebies without paying GST, leading to revenue leakage for the exchequer.

The department has issued preliminary notices to some of the top car dealerships, seeking details of discounts offered by them including freebies, people with direct knowledge of the matter told ET.

Based on the information sought by the tax department in the preliminary notices, tax experts said the investigation is around taxes paid and input tax credit claimed during transition from old tax framework to the goods and services tax (GST) regime.


Under transitional credit, at the time of paying GST a company can claim credit on taxes such as excise duty already paid on inputs under the previous tax regime.

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“The focus of the investigation seems to be on whether there is a revenue leakage for the department in the way dealers paid GST and availed input tax credit on the freebies and discounts offered to customers,” said Suresh Nandlal Rohira, partner at Grant Thornton India.

Dealers of major car companies, including Maruti Suzuki, Honda, Hyundai, Toyota and Tata Motors, have been issued preliminary enquiry letters, said a person with direct knowledge of the matter.
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The tax department is scrutinising whether the tax treatment of the discounts while transitioning from old tax regime to GST was done properly, sources said. The taxman is also looking into how car dealers have calculated and claimed input tax credits on freebies offered to customers.

Car dealers normally offer discounts and free products to customers when they buy cars. But they are not uniform; dealers tend to offer discounts and freebies depending on their sales.

Now, experts said, dealers have been taking input tax credit on these products, which the taxman thinks shouldn’t be allowed. There is no concept of “free” under GST framework, they said.

“Many automobile dealers offer various freebies, which could be goods or services, whose value is embedded in the price of the automobile,” said M S Mani, partner at Deloitte India. “This makes it difficult to segregate the value of the free or discounted supplies.”

Industry trackers said the investigation by tax officials, which is still in the initial stage, would check how taxes were calculated when GST was rolled out on July 1, 2017.
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“Discounts were offered on cars just before GST was rolled out and the tax department is seeking information regarding discounts offered, credit availed, GST paid and what were the tran 1 (transitional credit form) submissions,” said Rohira of Grant Thornton.

Industry experts said many manufacturers were pushing to sell off old inventory before the GST was rolled out, & dealers offered significant discounts and freebies.

The tax department would look into taxes paid by the dealers and input credits availed. Transitional credit is the component of credit which was lying on the books of companies and dealers when GST was rolled out. The GST framework allows a way to set off this transitional credit against future GST liability.
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