Case Of: Karthick and Co.
Issued By: Tamil Nadu AAR
Order No: AR No. 46/ARA/2025
Date: 17th Nov 2025
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Judgement
Sales-Linked Non-Monetary Incentives Such as Free Gifts and Tours are Taxable under GST
Observations
The applicant, a registered paint dealer operating under a dealership/franchise arrangement, received non-monetary incentives such as gifts and domestic or foreign tour packages from its principal manufacturers upon achievement of sales targets and promotional milestones.
These benefits were extended not only to the dealer but also to painters associated with the dealer, with the clear objective of increasing sales volumes, brand promotion and market penetration of the manufacturer’s products.
The incentives were linked to business performance and were not given voluntarily or without obligation; they arose directly from sales-driven activities undertaken by the dealer in the course of business.
The manufacturers treated such benefits as business perquisites and deducted TDS under Section 194R of the Income-tax Act, recognising that the incentives had a determinable monetary value. Not they approached the AAR to understand the GST application.
Findings
The AAR observed that the dealer had actively contributed to sales promotion and target achievement for the manufacturer, and the incentives received were in return for these activities, establishing a clear business connection.
It was held that consideration under GST is not limited to cash; benefits received in kind, when linked to business activities, are equally covered within the scope of supply under Section 7 of the CGST Act.
The deduction of TDS by the manufacturer was seen as reinforcing the position that such incentives carry monetary value and cannot be treated as mere free gifts outside the GST framework.
Accordingly, the receipt of non-monetary incentives was held to be a taxable supply of service by the dealer, requiring payment of GST and issuance of a valid
tax invoice charging CGST and SGST.