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

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 - Post purchase discount - Whether the MRF Ltd can avail the ITC of the full GST charged on the supply of invoice or a proportionate reversal of the same is required in case of post purchase discount given by the supplier of the goods or services? - Section 16 of CGST Act 2017/TNGST Act 2017. Held that:- Section 16(1) states that a registered recipient is eligible to take credit on the input tax charged on any supply of goods or services. As per Section 9(1) of the act, CGST tax is leviable on the value of supply as determined by Section 15 of the Act - Time of supply of goods as per Section 12 is the earlier of the following dates, namely the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply or the date on which the supplier receives the payment with respect to the supply. In the instant case, the invoices are all raised before the payment dates, so the time of supply is the date of raising invoices. The discount is given after the invoices are raised and supply of goods is made and no discount is recorded in the invoice. Hence, Section 15 (3) (a) does not apply. All the invoices are uploaded by the supplier in the C2FO software after they are raised. Based on various parameters such as desired annual percentage discount rate, cash availability set by the recipient and the varied offers of discounts made by the suppliers based on their need for an early payment, C2FO software optimizes the dates of early payment for each invoice and determines the final discounted transaction value of a particular invoice - the value of supply in such transactions is the full undiscounted value mentioned on the invoice. Proviso to Section 16 states that where a recipient fails to pay to the supplier of goods or services or both, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, and the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon - In the instant case, the value of supply is the full undiscounted value indicated in the tax invoice and the recipient / Applicant only makes payment to the extent of invoice value less the discount thrown up by the C2FO software. As per proviso to Section 16, the recipient is entitled to avail the credit of input tax on the payment made by him alone and if any amount is not paid as per the value of supply and the recipient has availed full input tax credit, the same would be added to his output tax liability. The Applicant can avail Input Tax Credit only to the extent of the invoice value less the discounts asper C2FO software. If he has availed input tax credit on the full amount, he should reverse the difference amount equal to the discount, to avoid adding to his output liability. 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.