2019 (10) TMI 792 - AAR - GST

Volume discounts on purchases & sales without GST adjustments not taxable

The Authority for Advance Ruling held that volume discounts received by a private limited company on purchases and retail sales in the form of credit ... Discount excluded from value of supply under Section 15(3) - post supply credit note treated as incentive, not a taxable supply - no adjustment of GST where credit note does not alter taxable value - input tax credit reversal requirement for post supply discount - no obligation to issue tax invoice where transaction is not a supplyPost supply credit note treated as incentive, not a taxable supply - no adjustment of GST where credit note does not alter taxable value - Volume discount received on purchases in the form of a credit note without adjustment of GST is not liable to GST. - HELD THAT: - The Authority found that the authorised supplier issues tax invoices on sale and the applicant claimed input tax credit thereon. Where the authorised supplier later issues a credit note as an incentive for purchases exceeding targets but makes no adjustment to the price of goods already sold and no adjustment of GST in that credit note, the payment is an incentive and a financial/accounting adjustment rather than a fresh supply. Because the credit note does not affect the taxable value of earlier supplies and no GST adjustment is recorded, the amount received does not give rise to a liability to charge GST. [Paras 4]No GST is payable on volume discount received on purchases when given by credit note without any adjustment of GST.Post supply credit note treated as incentive, not a taxable supply - no adjustment of GST where credit note does not alter taxable value - Volume discount received on retail (sales) in the form of a credit note without adjustment of GST is not liable to GST. - HELD THAT: - The Authority observed that where the applicant exceeds sales targets and receives an incentive in the form of a credit note from the authorised supplier, that credit note does not alter the sale price of goods nor does it record any tax adjustment. The amount is therefore an incentive/discount provided by the supplier and not a consideration for a supply by the applicant; consequently, it does not attract GST. [Paras 4]No GST is payable on volume discount received on retail (sales) when given by credit note without any adjustment of GST.Discount excluded from value of supply under Section 15(3) - input tax credit reversal requirement for post supply discount - no obligation to issue tax invoice where transaction is not a supply - The applicant is not required to issue a tax invoice for the credit note discount since the amount is a discount and not a supply by the applicant. - HELD THAT: - Applying the principle in Section 15(3), the Authority noted that discounts do not form part of the value of supply if they fall within the statutory exceptions. The credit note in this case is a post supply incentive but the conditions of Section 15(3)(b) are not satisfied because the discount was not linked to reversal of input tax credit by the recipient. The credit note therefore functions as a financial discount/incentive and not as consideration for a supply by the applicant; accordingly, there is no requirement to issue a tax invoice for such amounts. [Paras 4]No tax invoice need be issued by the applicant for the credit note volume discount since it is a discount/incentive and not a taxable supply.Final Conclusion: The Authority ruled that volume discounts received (both on purchases and on retail sales) by the applicant in the form of credit notes which do not adjust the GST are not liable to GST, and the applicant is not required to issue tax invoices for such credit note discounts. Issues involved:1. Whether volume discount received on purchases is liable for GSTRs.2. Whether volume discount received on retail (on sales) is liable for GSTRs.3. Whether the Company has to issue a taxable invoice for volume discount transactionsRs.Analysis:1. The applicant, a private limited company dealing in motor vehicles, sought an advance ruling on the liability of GST on volume discounts received on purchases and retail sales. The company, as an authorized dealer for a motorcycle manufacturer, receives volume discounts based on exceeding purchase targets. The authorized supplier issues credit notes for these discounts, which do not affect the sale price or GST collected in invoices. The applicant does not adjust input tax credit or claim reductions, as the discounts are incentives provided by the supplier and do not impact the sale price of goods already sold.2. The Authority for Advance Ruling examined the transactions and concluded that the volume discounts received by the applicant, both on purchases and retail sales, in the form of credit notes without any adjustment of GST, are not liable for GST. These discounts are considered incentives that do not affect the sale price of goods, and therefore, there is no obligation to charge GST on them. The discounts are provided by the authorized supplier as financial incentives and do not alter the value of the supply or impact GST calculations.3. Additionally, the ruling clarified that since the discounts received in the form of credit notes are categorized as discounts and not supplies by the applicant to the authorized supplier, there is no requirement for the company to issue a taxable invoice for these transactions. The credit notes issued by the supplier serve as financial documents for account adjustments related to the incentives provided, and they do not influence the GST implications. Therefore, the applicant is not obligated to issue tax invoices for these discount transactions.In conclusion, the Authority for Advance Ruling determined that the volume discounts received by the applicant on purchases and retail sales in the form of credit notes without GST adjustments are not subject to GST. The discounts are considered incentives provided by the authorized supplier and do not impact the GST liability or require the issuance of taxable invoices by the company.