2026 (3) TMI 142 - HC - GST

Transaction Value Adjustment for Post Contractual Trade Discounts: prima facie invalidity flagged; recovery stayed subject to deposit.

Challenge to the statutory treatment of post contractual trade discounts under Section 15(3)(b) of the CGST Act is raised as prima facie invalid insofar ... Validity of Section 15(3)(b) of the CGST Act - relation to trade discounts computed after formation of the underlying contract - interim protection subject to deposit of 10% of the disputed tax - invocation of Section 74. Prima facie challenge to validity of Section 15(3)(b) of the CGST Act - interim protection subject to deposit of 10% of the disputed tax - HELD THAT:- The petition assails Section 15(3)(b) of the CGST Act, contending that trade discounts arising from pre-existing agreements, though computed later, cannot be treated as affecting the transaction value or amount receivable. Reliance was placed on prior Supreme Court authorities which, it was submitted, favour the assessee under the pre-existing CGST and VAT regimes. The bench noted the legislative intent to delete the provision on the recommendation of the GST Council via the Finance Bill, 2026. Having considered these points, the Court recorded that a prima facie case exists for deeper scrutiny and accordingly issued notice to the Attorney General of India. In view of the prima facie findings, the Court found it appropriate to grant interim protection by restraining further recoveries from the petitioner during the pendency of the writ petition, subject to deposit of 10% of the disputed tax (including any amount already deposited or recovered). The other objections raised (including challenge to invocation of Section 74) were recorded but not finally adjudicated in the order. [Paras 2, 3, 6, 9] Notice issued; interim protection granted restraining further recoveries subject to deposit of 10% of the disputed tax; matter listed for further hearing. Final Conclusion: The High Court recorded a prima facie challenge to Section 15(3)(b) of the CGST Act, issued notice, and granted interim protection by restraining further recoveries from the petitioner during pendency of the writ petition on condition of deposit of 10% of the disputed tax. Issues: (i) Whether Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 is valid when it treats post-contractual or subsequently computed trade discounts as affecting transaction value; (ii) Whether invocation of Section 74 of the Central Goods and Services Tax Act, 2017 is maintainable in the facts raised; (iii) Whether interim protection in the form of stay of recovery should be granted to the petitioner and on what terms.Issue (i): Validity of Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 in relation to trade discounts computed after formation of the underlying contract.Analysis: Reliance is placed on precedent holding that trade discounts arising from pre-existing agreements but computed later do not alter the supplier's liability on transaction value; legislative treatment contrary to that principle has been questioned and requires closer scrutiny on merits.Conclusion: Prima facie doubt is raised on the validity of Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 as applied to subsequently computed trade discounts; the issue requires detailed adjudication.Issue (ii): Objection to invocation of Section 74 of the Central Goods and Services Tax Act, 2017.Analysis: The challenge to initiation of proceedings under the penal provision has been advanced as a substantive objection to be examined on merits, and the petition presents sufficient material to warrant deeper scrutiny of the grounds for invoking Section 74.Conclusion: A prima facie case is made out that invocation of Section 74 of the Central Goods and Services Tax Act, 2017 may be open to challenge; the question is to be decided on a full hearing.Issue (iii): Entitlement to interim protection from recovery during pendency of the writ petition.Analysis: Having found prima facie merit on the challenges to the statutory provisions and the invocation of penal proceedings, and having noted partial deposit/recovery already effected, interim relief in the form of restraint on recovery subject to a deposit condition is appropriate to preserve the petitioner's position until final disposal.Conclusion: Interim protection is granted to the petitioner; subject to deposit of 10% of the disputed tax (including amounts already deposited or recovered), no further recoveries shall be made during the pendency of the writ petition.Final Conclusion: The petition raises substantial questions of law concerning the application of transaction value rules and the invocation of penal provisions under the Central Goods and Services Tax Act, 2017, and interim relief has been issued to preserve the subject matter pending adjudication.