Karnataka AAR Holds Rebates from Corporate Card Usage for Excise Duty Payments Not Liable to GST

Karnataka Authority for Advance Ruling (AAR) has delivered a significant ruling on the applicability of Goods and Services Tax (GST) to rebates received by liquor manufacturers from banks for payments made through corporate cards. The applicant, a company engaged in liquor manufacturing under the Karnataka Excise Act, 1965, sought an advance ruling on whether rebates received from HSBC Bank for payment of excise duty via a corporate card are liable to GST.

The applicant explained that while its principal business—liquor manufacturing—is outside the purview of GST, it is registered under GST for ancillary transactions such as royalty income, scrap sales, and availing Goods Transport Agency (GTA) services under reverse charge. The company uses a corporate card from HSBC Bank to pay excise duty, and based on the total payments made in a month, the bank grants a rebate, which is adjusted against the outstanding card balance.

In its submissions, the applicant argued that such rebates are in the nature of financial discounts or refunds and do not constitute consideration for any supply of goods or services. Citing Section 2(75) of the CGST Act, 2017, the applicant contended that these are transactions in money, which are outside the scope of GST. The applicant also relied on the Supreme Court’s decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., emphasizing that only amounts received as quid pro quo for a taxable supply can be subjected to GST. Additionally, the applicant referred to Entry No. 27 of Notification No. 12/2017-Central Tax (Rate), which exempts interest or discount on loans from GST.

The AAR, after considering the submissions and relevant legal provisions, observed that the rebate granted by the bank is a post-transaction financial adjustment linked to the use of the corporate card. It is not attributable to any independent or identifiable supply of goods or services by the applicant to the bank. The Authority emphasized that a supply under Section 7 of the CGST Act requires consideration and a corresponding quid pro quo, which is absent in this case.

The AAR further noted that the rebate merely reduces the outstanding monetary liability to the bank and falls within the definition of “money” under Section 2(75) of the CGST Act. The Authority found the applicant’s reliance on the Supreme Court’s judgment to be appropriate, reiterating that only consideration received as quid pro quo for a service rendered can be taxed. The rebate in question does not represent such consideration and, therefore, cannot be brought to tax under GST.

Additionally, the AAR highlighted that the corporate card arrangement essentially facilitates a short-term credit for excise duty payments, and the rebate operates as a discount in respect of such financial accommodation. Such transactions are covered by the exemption under Entry No. 27 of Notification No. 12/2017-Central Tax (Rate).

In conclusion, the Karnataka AAR ruled that rebates received from banks on corporate card payments for excise duty are transactions in money, do not involve any supply of goods or services, and are not liable to GST under the CGST/KGST Act, 2017.