Namaste DOST!

Today’s story begins with something many businesses take lightly — those free gifts, foreign trips, and perquisites manufacturers often hand out to their dealers. They feel harmless. Even flattering.

But an Advance Ruling from Tamil Nadu quietly reminds us: nothing is really “free” in tax law.

So let’s open this file together and see what happens when TDS under 194R enters the picture… and GST follows right behind it.

Summary

This case involved a paint dealer who received non-monetary benefits such as gifts, compliments, and foreign tour packages from paint manufacturers. Since the manufacturers deducted TDS under Section 194R, these perks appeared as income in the dealer’s Form 26AS. To stay compliant, the dealer issued GST tax invoices on the value of these perks. But the manufacturers claimed GST was not applicable because these benefits were not a “supply”.

The Tamil Nadu AAR examined whether such non-monetary benefits, when subjected to TDS under Section 194R, constitute consideration for a supply under GST. The AAR held yes — the dealer was providing support services (sales promotion), and the non-cash benefits were the consideration received. Therefore, GST was payable, and the invoices issued were valid.

In essence, If 194R treats it as income, GST may treat it as a supply.

Facts of the Case

M/s Karthik & Co., a wholesale and retail dealer of paints, operated as a franchisee for major paint manufacturers. As part of the business relationship, manufacturers frequently rewarded the dealer — and sometimes their painter-customers — with:

• Free gifts
• Compliments
• Foreign tour packages

These benefits were not paid in cash. But the manufacturers still deducted 10% TDS under Section 194R of the Income Tax Act, and the value appeared in the dealer’s Form 26AS.

To stay compliant, the dealer raised GST tax invoices for the value of these perks.

The manufacturers disagreed.

They argued: “These are just incentives… not a supply under GST. Why invoice us?”

The dealer approached the Tamil Nadu Authority for Advance Ruling, seeking clarity.

Legal Issue

The core question was simple but powerful:

“ When a dealer receives non-monetary benefits and TDS is deducted under Section 194R, does this amount to a ‘supply’ under GST requiring tax to be paid?

Or in other words:

“ Do gifts, tour packages, and incentives become consideration for a service?

This is where the story gets interesting.

Arguments (As Reflected in the Ruling)

The manufacturer’s stance (as conveyed by the applicant):

• These benefits are not a supply of goods or services.
• Therefore, GST invoices should not be raised.

The dealer’s view:

• Since the manufacturer deducted TDS, the benefit becomes income.
• If it is income, it implies the existence of a supply.
• To comply with GST, invoices were raised.

AAR’s Decision

The Tamil Nadu AAR issued a clear and detailed ruling.

First, it reaffirmed what Section 194R means:

If a person provides any benefit or perquisite relating to business or profession, TDS must be deducted.

And once deducted, this appears as income of the recipient.

From a GST angle, this matters.

AAR held that these non-monetary benefits are indeed “consideration” for a service.

That service?

Sales promotion / augmentation of sales, performed by the dealer for the manufacturer.

The AAR then applied Section 7 of the CGST Act:

A supply exists when—

• There is consideration
• It is provided by a person
• It is in the course or furtherance of business

All three existed.

And so:

This is a taxable supply of support services.

The tax invoices raised by the dealer are valid.

GST is payable.

Legal Reasoning & Analysis

Let’s break the reasoning down in simple language.

1. Consideration need not be in money

Section 2(31) says consideration may be monetary or otherwise.

A foreign tour package is definitely “otherwise.”

2. A quid pro quo exists

The dealer promoted the manufacturer’s products.

The manufacturer rewarded the dealer.

Something for something — a classic business exchange.

3. Income tax treatment affects GST characterization

When manufacturers cut 194R TDS, they assert:

“This is income given for business.”

GST simply replies:

“If it is income, it is likely consideration. And if it’s consideration, it’s supply.”

4. Valuation under Rule 27

Since consideration wasn’t monetary, valuation must follow Rule 27.

The AAR concluded:

Use the value declared in the 194R TDS certificate.

5. GST can be inclusive

Because the dealer didn’t receive any additional payment, GST can be treated as inclusive under Rule 35.

Simple. Logical. And a little eye-opening.

Important Takeaways for Every Business Owner

1. Non-monetary benefits can trigger GST.

A free tour may turn into a taxable service if 194R applies.

2. TDS under 194R is a red flag.

If your Form 26AS shows 194R benefits, check your GST liability.

3. Consideration is not always cash.

Gifts, vouchers, and incentives may count.

4. Manufacturers and dealers must align their tax positions.

One cannot treat something as income while the other denies it as supply.

5. Maintain documentation.

If incentives are performance-linked, GST may step in. Keep records clean.

Broader Impact — Why This Matters

This ruling sends a quiet signal across industries:

The Income Tax and GST systems are increasingly interconnected.

A treatment under one law can influence interpretations under another.

For businesses that routinely receive incentives, this is a moment to pause and reassess compliance.

Conclusion

What looked like a harmless reward — a foreign trip, a gift, a compliment — turned into a full-blown GST question. But the AAR made the answer simple: if you earned it through business performance, it’s not free.

And honestly DOST, this feels right.

Tax law may be complicated, but the logic behind it shouldn’t keep you awake at night.

At GST DOST, our mission is simple — help you navigate these intersections with clarity, calm, and confidence.

“📞 Need help with a similar case? Contact GST DOST for personalised support.

FAQ

Q1: What was the dispute in this case?

The dispute was whether non-monetary benefits received by a dealer — on which TDS under Section 194R was deducted — constitute a taxable supply under GST.

Q2: How did the AAR rule?

The AAR held that these benefits were consideration for support services, and GST invoices issued by the dealer were valid.

Q3: When does a non-monetary benefit become a GST supply?

When it is linked to business performance and treated as income (especially via 194R TDS), it becomes consideration for a service.

Q4: How is the GST value determined?

The value of supply is the same as the value shown in the 194R TDS certificate, as per Rule 27.

• Case: M/s Karthik & Co — Tamil Nadu Authority for Advance Ruling, Advance Ruling No. 46/ARA/2025, dated 17.11.2025
• Statutes Referenced:
• Section 7, CGST Act — Definition of Supply
• Section 2(31), CGST Act — Consideration
• Rule 27 & Rule 35, CGST Rules — Valuation
• Section 194R, Income Tax Act — TDS on Benefits/Perquisites

Written by CA Vikash Dhanania | Reviewed by GST DOST Legal Research Team | Updated on 02/12/2025.

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