Discount after Supply

[Kaustubh Karandikar]

XYZ is issuing invoice for the supply of goods and charging full GST on the full value of the invoice. At the bottom of the invoice, a remark is given as ‘if payment is received within 7 days, 2% discount will be given’. Can XYZ subsequent to supply issue credit note with GST to the customer for 2% discount if the payment is received within 7 days and reduce his GST liability in that month to the extent of the GST on 2% discount shown in the credit note?

[KASTURI SETHI]

This is called conditional discount which was not allowed in Central Excise. Regarding discount status quo is maintained in GST regime. Conditional discount does not conform to the parameters of pre-known or at the time of sale/supply. The element of uncertainty is present notwithstanding terms and conditions in a contract. Hence not admissible. This is my view.

[Alkesh Jani]

Dear Sir,

In this regards, Section 15 (3)(a) of CGST Act,2017, is as under:-

“(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if-

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Section 12 (2) of CGST Act, 2017 is as under:-

(2) The time of supply of goods shall be the earlier of the following dates, namely:-

(a) 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

(b) the date on which the supplier receives the payment with respect to the supply:”

On conjoint reading it is very clear that the date of issuance of Invoice is the time of supply and as at the time of supply the discount of 2% is duly recorded in the Invoice, the supplier is required to reverse the ITC as attributable to the discount. In my view the procedure adopted by the querist is correct.

Any different view by our experts in the matter is highly solicited.

Thanks,

With regards,

[KASTURI SETHI]

Re-examined the whole issue in depth. I agree with Sh.Alkesh Jani Ji. If discount is genuine and has been passed on to the buyer and also established on the basis of records maintained by the supplier. Invoice itself is an agreement for this purpose.

Just For knowledge sake (Case pertained to pre-GST era)

The issue of Conditional discount is pending with the the Supreme Court. The party filed appeal as the party lost the case in the Tribunal.

Business Auxiliary Service - Additional discount extended to wholesalers/distributors for providing weekly report/inventory relating to sales, whether leviable to Service Tax?

The Supreme Court Bench comprising Hon’ble Mr. Justice J. Chelameswar and Hon’ble Mr. Justice Sanjay Kishan Kaul on 24-11-2017 after condoning the delay admitted the Civil Appeal Diary No. 33900 of 2017 with I.A. No. 120859 of 2017 filed by Iris Computers Ltd. against the CESTAT Final Order No. ST/A/55715/2017-CU(DB), dated 4-8-2017 as reported in 2017 (6) G.S.T.L. 525 (Tri.-Del.) =  2017 (9) TMI 233 - CESTAT NEW DELHI (Iris Computers Ltd. v. Commissioner). While admitting the appeal, the Supreme Court passed the following order :

“Delay condoned.

Appeal admitted.

No coercive steps be taken against the appellant, in the meanwhile.”

The Appellate Tribunal in its impugned order had held that 1% additional discount over and above normal trade discount extended by H.P. India Sales Pvt. Ltd. to the wholesaler/distributor, was not trade discount but conditional discount for providing services in the form of weekly reseller sell and inventory reports in the specified format based on which H.P. decides on their business policy relating to marketing, etc. Such discount pertained to Business Auxiliary Services provided by the assessee to H.P. and leviable to Service Tax.

[Iris Computers Ltd. v. Commissioner - 2018 (11) G.S.T.L. J80 (S.C.)] = 2017 (11) TMI 1491 - SUPREME COURT

[Kaustubh Karandikar]

Respected Mr. Jani and Sethi,

Thanks for your valuable guidance. but i had the following apprehentions:

• As per Section 34(1) of CGST Act, 2017, Credit Note can be issued only under the following situations by the registered person, who has supplied goods or services or both:

• Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or
• where the goods supplied are returned by the recipient, or
• where goods or services or both supplied are found to be deficien

• In view of the above, section 34(1) of CGST and SGST Act as mentioned above, do not make specific provision for issue of credit note for passing of discount which was not contemplated at the time of supply.
• Therefore, XYZcan take shelter of Section 15(3) (b) of CGST Act, 2017 and give discount but when it comes to reducing the liability, GST authorities might object since there is no specific provision in the law.
• Expert's views please

[DR.MARIAPPAN GOVINDARAJAN]

If it is within that month the liability may be reduced. If discount is given for subsequent month credit note is to be issued.

[Alkesh Jani]

Sir,

Please refer Rule 53 the sub-clause (i) is with regards to value of tax and in description one can mention as discount mentioned in Invoice No.....As we are aware that credit can be taken only on the basis of Tax Invoice or Credit Note or Bill of Entry. I do not find any adverse view department can take in future as, there is no tax evasion and discount is linked with the Invoice and also in the credit note.

Thanks,

Regards.

[YAGAY and SUN]

Post supply discount would be allowed on credit notes and if such discounts pre announced.

AI Summary

Conditional discount under GST: credit note allowed if pre established and ITC reversed, with documentary linkage required.
Discounts recorded in the invoice at or before the time of supply, or established by an agreement at or before supply and linked to invoices, may be adjusted post supply by issuing a credit note and reducing tax liability, provided the recipient reverses input tax credit attributable to the discount and proper records link the credit note to the original invoice.