2019 (3) TMI 928 - AAR - GST

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

In Re: M/s. MRF Limited

In Re: M/s. MRF Limited - 2019 (23) G.S.T.L. 193 (A. A. R. - GST), [2019] 65 G S.T.R. 11 (AAR) 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.