2019 (3) TMI 928 - AAR - GST

Understanding Input Tax Credit: Discounts, Payment Terms, and Reversal to Avoid Output Tax Liability

The Authority for Advance Ruling determined that the Applicant can avail Input Tax Credit (ITC) only on the invoice value less the discounts as per the ... Input Tax Credit admissibility - Value of supply and treatment of post-supply discount - Discount established by agreement linked to relevant invoices and reversal of ITC - Time of supply determined by invoice date - Proviso to Section 16 - addition of ITC to output where payment not made within 180 daysInput Tax Credit admissibility - Value of supply and treatment of post-supply discount - Time of supply determined by invoice date - Whether the applicant can avail full ITC on the GST charged in the supplier's invoice or must reverse ITC proportionate to post purchase discounts obtained via the C2FO platform. - HELD THAT: - The invoices in question are raised before payment, so the time of supply is the invoice date and the discounts arise after supply and after invoicing. Section 15(3)(a) does not apply because discounts are not given before or at the time of supply and are not recorded on the invoice. Section 15(3)(b) would apply only where a discount is established by an agreement entered into at or before the time of supply and specifically linked to the relevant invoices and where the recipient has reversed the proportionate ITC; that factual scenario is not present here. Consequently the value of supply, for GST purposes, remains the full undiscounted invoice value. However, the proviso to Section 16 makes the recipient's entitlement to retain ITC conditional on payment: where the recipient does not pay the value of supply along with tax within 180 days, the input tax credit availed must be added to output tax liability (subject to prescribed manner) and the recipient is entitled to re avail credit only upon payment. Applying these provisions, although GST is charged on the undiscounted invoice value, the applicant can ultimately retain ITC only to the extent of the amount actually paid to the supplier (i.e., invoice value less the discount realized through C2FO); if the applicant has availed ITC on the full invoice amount but pays only the discounted amount, the difference equal to the discount must be reversed to avoid addition to output tax liability.Applicant may avail Input Tax Credit only to the extent of the invoice value actually paid (invoice value less discounts realized via C2FO); proportionate reversal is required if full ITC was availed but payment was made only for the discounted amount.Final Conclusion: Advance Ruling: the applicant can avail ITC only to the extent of the invoice value less the discounts applied through the C2FO platform; if full ITC was taken but payment is made only for the discounted amount, the proportionate ITC corresponding to the discount must be reversed (consistent with the proviso to Section 16). Issues Involved:1. Eligibility of Input Tax Credit (ITC) on full GST charged on the supply invoice.2. Requirement of proportionate reversal of ITC in case of post-purchase discount.Detailed Analysis:1. Eligibility of Input Tax Credit (ITC) on Full GST Charged on the Supply Invoice:The Applicant, a registered entity under the CGST 2017 and TNGST 2017, sought an advance ruling on whether they can avail the ITC of the full GST charged on the supply invoice or if a proportionate reversal is required in the case of post-purchase discounts given by the supplier. The Applicant intends to use the C2FO platform for early payment discounts, where suppliers can offer discounts for early payment of invoices. The Applicant argued that since the discount is offered post-supply and is not part of the original purchase contract, the full GST should be considered for ITC without proportionate reversal.2. Requirement of Proportionate Reversal of ITC in Case of Post-Purchase Discount:The ruling examined the relevant sections of the CGST Act 2017, particularly Sections 15 and 16. Section 15(3) states that the value of supply does not include any discount given after the supply if it is established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices. The Applicant's discount arrangement via the C2FO platform did not meet these conditions as the discount was not part of the original purchase contract and was not recorded in the invoice. Therefore, Section 15(3)(b) does not apply.Section 16(1) allows a registered recipient to take credit on the input tax charged on any supply of goods or services. However, as per the proviso to Section 16, if the recipient fails to pay the supplier the full value of supply along with the tax payable within 180 days from the invoice date, the ITC availed by the recipient should be added to their output tax liability. In this case, since the Applicant pays only the discounted amount, they can avail ITC only to the extent of the invoice value less the discount. If the Applicant has availed ITC on the full amount, they must reverse the difference equal to the discount to avoid adding it to their output liability.Ruling:The Authority for Advance Ruling concluded that as per the provisions of Section 16 of the CGST Act 2017/TNGST Act 2017, the Applicant can avail ITC only to the extent of the invoice value less the discounts as per the C2FO software, which is the amount actually paid to the suppliers.