2019 (8) TMI 307 - AAAR - GST

Appellate authority permits full Input Tax Credit on undiscounted GST invoices under Section 16(2)

The appellate authority allowed the appellant to avail Input Tax Credit (ITC) on the full GST charged on undiscounted supply invoices, provided the GST ... Input tax credit - value of supply - transaction value - post-purchase discount - proviso to Section 16(2) of the CGST Act - section 15(3) deduction conditions - anti-evasion measureInput tax credit - post-purchase discount - value of supply - section 15(3) deduction conditions - proviso to Section 16(2) of the CGST Act - Whether the buyer (M/s MRF Ltd.) can avail full input tax credit on GST charged on the undiscounted invoice where supplier offers a post-purchase discount through the C2FO platform, or whether a proportionate reversal of credit is required. - HELD THAT: - The Appellate Authority examined Sections 9, 15 and 16 of the CGST Act and found that Section 15(1) fixes taxable value as the transaction value (price actually paid or payable). Section 15(3) excludes discounts from value only where (a) discount is before or at time of supply and recorded in the invoice, or (b) a post-supply discount is established by agreement entered into at or before supply and the recipient reverses attributable ITC. The proposed C2FO discounts do not satisfy either limb of Section 15(3); they are not recorded in the invoice nor established by pre supply agreement, nor is any reversal of ITC provided for. Consequently the taxable value remains the undiscounted transaction value on which GST was charged and paid. The proviso to Section 16(2) operates where the recipient fails to pay to the supplier the amount towards the value of supply along with tax within 180 days; it is an anti evasion/prompt payment safeguard and does not apply where the buyer has paid the commercial price and GST as recorded in the tax invoice. CBIC circulars and prior executive guidance (although not binding) support treating credit in respect of tax actually charged and paid, not tax merely chargeable. Applying these principles to the facts, where the buyer has discharged the GST charged on the undiscounted invoice and such GST is not later refunded, re credited or otherwise reversed by the supplier, there is no requirement to proportionately reverse ITC on account of a post purchase discount effected through the C2FO arrangement described in the application. The ruling is confined to the described C2FO scenario and is subject to other statutory conditions for availing ITC being met. [Paras 9, 11, 12]M/s MRF Ltd. can avail input tax credit of the full GST charged on the undiscounted supply invoice; no proportionate reversal of credit is required in the specified C2FO post purchase discount circumstances, subject to statutory conditions and absence of any subsequent refund or reversal of the GST paid.Final Conclusion: The Appellate Authority set aside the AAR decision and held that, on the facts presented, the buyer is entitled to full ITC of GST charged on the undiscounted invoice where post purchase discounts are later given through the specified C2FO platform, provided statutory conditions for ITC are met and the GST so paid is not subsequently reversed or refunded. Issues Involved:1. Eligibility to avail Input Tax Credit (ITC) on the full GST charged on undiscounted supply invoices.2. Interpretation of Section 16(2) of the CGST Act regarding post-purchase discounts.3. Applicability of anti-evasion provisions and legislative intent behind Section 16(2).Issue-wise Detailed Analysis:1. Eligibility to Avail ITC on Full GST Charged on Undiscounted Supply Invoices:The appellant, M/S MRF Limited, entered into an arrangement with C2FO India LLP for an automated data exchange platform to facilitate early payment discounts on invoices. The appellant contended that the value of supply for GST purposes should be the full undiscounted value and sought to avail ITC on the full GST charged on the undiscounted invoices. The original authority ruled that ITC could only be availed on the discounted value. However, the appellate authority set aside this ruling, allowing the appellant to avail ITC on the full GST charged, provided the GST paid is not reversed or reimbursed.2. Interpretation of Section 16(2) of the CGST Act Regarding Post-Purchase Discounts:The appellant argued that the proviso to Section 16(2) of the CGST Act, which requires payment of the value of supply along with tax within 180 days, should be interpreted to mean the commercially agreed price between the supplier and the recipient. They contended that the legislative intent was to ensure timely payment to suppliers, especially in the MSME sector, and not to deny ITC when the full commercial price is paid. The appellate authority agreed with this interpretation, stating that the provision is an anti-evasion measure and does not apply to cases where the full commercial price and GST are paid.3. Applicability of Anti-Evasion Provisions and Legislative Intent Behind Section 16(2):The appellate authority examined the legislative intent behind Section 16(2) and concluded that it is an anti-evasion measure to ensure genuine supplies and timely payment to suppliers. The authority referred to the discussions in the GST Council meetings and CBIC circulars, which supported the view that ITC should be available on the full GST paid, provided the tax is not subsequently reduced or refunded. The authority emphasized that the provision aims to prevent evasion and ensure prompt payment, not to deny ITC when the commercial price and GST are fully paid.Conclusion:The appellate authority set aside the original ruling and allowed the appellant to avail ITC on the full GST charged on undiscounted supply invoices, subject to the condition that the GST paid is not reversed or reimbursed. This ruling applies to cases where post-purchase discounts are extended through the C2FO platform, and the appellant fulfills all other legal conditions for availing ITC.