NEW DELHI: The West Bengal authority for advance ruling (AAR) has said compensation made by a car manufacturer to a dealer for the loss on sale of demo cars is taxable under GST at 18%.
The West Bengal AAR, on an application of a dealer of Mercedes Benz India, recently ruled that since the dealer has agreed to tolerate the loss for a consideration, it would constitute ‘supply’ and accordingly a GST of 18% would be levied on compensation paid to the dealer. Demonstration cars are the ones which are used by the dealer for test drives. These cars are then sold at a lower price, or at a loss, which is then compensated by the car manufacturer.
Tax experts believe that the AAR’s decision to categorize the reimbursement received by the dealer from Mercedes Benz India for the “loss on sale of demo car” as taxable under GST at 18% may raise eyebrows within the sector.