Discount given by manufacturers to retailers, prima facie, cannot be considered as a consideration for services rendered by the retailer

The Hon’ble Delhi High Court in the case of Vardhaman Electronics v. Additional Commissioner, CGST Delhi West & Ors. [W.P. (C) 6334/2025 & CM APPL.28843/2025 dated May 13, 2025] held that the discount given by manufacturers to retailers, prima facie, cannot be considered as a consideration for services rendered by the retailer.

Facts:

Vardhman Electronics (“the Petitioner”) is a retailer selling various household appliances and other electronic goods. They were served a Show Cause Notice dated September 26, 2023 issued by the Additional Commissioner, CGST Delhi, Audit-II. Consequently, an order dated January 30, 2025 (“the Impugned Order”) was passed by the Additional Commissioner, CGST Delhi West (“the Respondent”) confirming demand of short payment of tax amounting to INR 9,85,22,360/- and additional penalties.

The Respondent contended that the Petitioner is given discounts by various manufacturers. However, the Revenue Department seeks to construe such discounts as income on which GST is payable.

Issue:

Whether discounts given by manufacturers to retailers, can be considered as a consideration for services rendered by the retailer?

Held:

The Hon’ble Delhi High Court in W.P. (C) 6334/2025 & CM APPL.28843/2025 held as under:

• Held 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 was stayed. The case is listed before the court on September 25, 2025.

Our comments:

The ‘levy and collection of tax’ under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) is governed by Section 9(1) of the CGST Act, which provides that GST shall be levied on the supply of goods or services or both, as per the value determined under Section 15 of the CGST Act.

In this context, Section 7(1)(a) of the CGST Act defines “scope of supply” to include all forms of supply of goods or services or both made or agreed to be made for a consideration in the course or furtherance of business.

Further, Section 15(1) lays down that the value of taxable supply shall be the transaction value, i.e., the price actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration.

Accordingly, tax can only be levied on the actual consideration received for a taxable supply, and any inference beyond the scope of the statutory valuation mechanism is contrary to the express provisions of the CGST Act.

In a pari materia case, the Hon’ble Madras High Court in the case of Supreme Paradise v. The Assistant Commissioner (ST) [W.P.Nos.13424, 13427, 13429, 13433 and 13435 of 2023] has allowed a batch of writ petitions challenging assessment orders related to the inclusion of post-supply volume discounts in the transaction value for GST computation purposes. The court clarified that discounts offered to the Assessee (buyer) and the discounted price at which they sell to customers are two independent transactions and should not be intermingled for tax purposes, unless the discounted price is due to a subsidy. The court concluded that discounts offered to the buyer should not be included in the transaction value unless they are linked to a subsidy. The court remitted the matter back for a proper order on merits based on these considerations.

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