Signage is displayed on a bottle sculpture outside the Coca-Cola Bottling Co. building in the South Central neighborhood of Los Angeles, California, U.S.(Photographer: Christopher Lee/Bloomberg)

GST Intelligence Agency Finds Irregularities In Tax Payment By Coca-Cola Bottler

The goods and service tax anti-evasion body has found irregularities in payment of tax by the bottler of Coca-Cola beverages in India.

The Directorate General of Goods and Services Tax Intelligence, after an investigation at Hindustan Coca-Cola Beverages Pvt. Ltd., found that the bottler was not following a "uniform approach in payment of tax" on after-sale discounts or incentives given to its distributors, said an official on the condition of anonymity.

Distributors of Coca-Cola are also under the taxman’s radar. The case relates to various incentives given by the bottler to its distributors like return on investments, free of cost sales, and issuing credit notes without paying GST, said the official citing an internal note. Credit notes are issued to distributors if the company wants to reduce prices through discounts.

The company, in some cases, paid tax to its distributors, and its distributors paid tax to the government, the official cited earlier said, adding that the company hasn't adopted a uniform approach to pay tax in issuing of credit notes.

The agency, according to the official, found that distributors have been showing these incentives as “other income” in their books. Discounts were neither mentioned in the agreements signed with distributors, nor were disclosed in the invoices, the official said, adding that tax had to be paid on the credit notes issued against these discounts or incentives.

“HCCB operates in full compliance to the law and regulations,” a spokesperson for the bottler said, adding that it offers various types of discounts, rate rebates, promotions etc. to its distributors under various schemes and nomenclatures to promote the sale of products. “Prior to transition to GST, discount schemes were treated in the assessment of HCCB as discounts.”

Under the GST regime, if discounts offered aren't part of the invoice, the company issuing the credit note has to pay tax on the entire amount, including the discount.

After the implementation of GST, the company continued to follow the same business practice, and hence continued to treat discount schemes, deductible from the value on which GST is leviable as a supply of goods, the company spokesperson said.

Besides the irregularity in payment of tax on credit notes, the intelligence body wants distributors to pay tax on incentives based on the interpretation that they provide a service to manufacturers. The incentive given to distributors is used to promote the manufacturers brand or advertisement, hence it's a service.

“We have met DGGI officials and presented our understanding of the subject. We are standing by for any further clarifications or discussions that may be required.”

This comes after the taxman has widened its probe and served notices to car dealers to pay tax retrospectively on discounts received by them.

Is It A Service?

The investigation body has been issuing notices to dealers of consumer goods companies and carmakers, calling incentives offered to distributors as a service.

The intelligence body was questioned by the government recently, flagging that these transactions are fundamentally in the nature of discounts, and not a service, BloombergQuint earlier reported. Issuing such notices would unsettle trade, it said.

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