Price Difference received from supplier and shown as income in P&L, whether there is any GST liability on it.

[Sandeep Yadav]

XYZ. Ltd(supplier) has given price difference to ABC Ltd.(recipient) by issuing a non gst document, because as per Sec15 discount which has not been agreed at the time of supply cannot be reduced from the value of supply.( This is also clarified from advance ruling sought by UltraTech Cement.). Now ABC Ltd. has not reversed the ITC proportionate to price diff received from XYZ.Ltd. ABC Ltd. has shown the price diff as its income in P&L A/C. My questions are:

1. Is there any need to reverse ITC proportionate to price diff received?

2. Whether there is any GST liability on price diff shown as income in P&L? (If ITC has not been reversed)

[Madhavan iyengar]

My views

XYZ has not reduced its taxable value ( post discount issued) and has only given a financial credit note to ABC Ltd, and there is no disclosure in GSTR-1

GST Impact for ABC Ltd - ABC is not required to reduce the ITC since there is no link with the invoice issued by XYZ

once it is delinked with the invoice ie not relatable to the supply then the discount is a financial transaction and could fall under service category

this discount is independent hence once we account it as independent transaction we need to charge GST on the discount amount and discharge gst a

and should be shown under GSTR-1 B2C supply

another issue is of reversal of credit if payment of invoice is not made within 180 days since after discount the creditors value would reduce thus there can be issue of reversal ???

As there is a lacuna in law on this issue

[Sandeep Yadav]

I am also of the view that if price diff is shown as independent transaction then, it will attract GST since recipient is mandated by its supplier to sell goods after considering price diff. This would completely fall under schedule 2 according to which agreeing to an obligation is a supply of services. Now the question arises that what would the tax compliant and beneficial treatment:

Option 1: Reverse ITC on price Diff and show it as deduction from purchases in trading account.

Option 2: Do not reverse ITC on price diff and show it as seperate item in credit side of P&L A/c and pay tax on it considering it as supply of services.

One more question is that if recipient set off the payment of supplier with price diff received then whether it violates the provision of sec16(2) regarding payment of consideration within 180 days.

I also want to mention that there is big ambiguity and lacuna in GST law in this regard.(Earlier in VAT regime there was a provision that no one can sell goods below its cost, but there is no such provision in GST Law.)

[Abhishek Sethi]

Can you clarify more around 'Price difference'? Is it a discount adjustment (some market factors or any business reason) or was original Invoice was raised incorrectly?

If it is former, then it should be booked as discount and ABC shall only reduce purchase cost. There is no requirement to reverse any ITC on part of ABC as non-payment reversal obligation arises only in case of fails to pay. There is no failure to pay, discount is an agreed form of discharge of consideration.

Re XYZ, since no GST adjustment has been claimed, he can simply book discount in his P&L

In case original invoice was wrongly raised of excess price, then it is as good as no supply is made to extent of increased price - thus ABC should reduce credit & XYZ should be eligible to adjust GST liability (provided within time frame of Sec 34)

Kind regards,

Abhishek

[Madhavan iyengar]

In my view GST is a tax on value addition the entire chain claims itc and discharges gst.

In this case as it is mentioned the credit note is not issued fro discount it is only a financial entry

effectively what has happened is ABC has got the benefit of lower price thru discount but has taken Full ITC on the relevant supply, since ITC reversal is ruled out as the supplier has not adjusted its output gst thus the 2A will also reflect the credit so need to reverse ITC,

being a financial transaction on discount amount ABC needs to discharge the GST as this will also offset the excess ITC taken by ABC against the out put gst

[Madhavan iyengar]

sending again as there was an error in earlier mail

In my view GST is a tax on value addition the entire chain claims itc and discharges gst.

In this case as it is mentioned the credit note is not issued fro discount it is only a financial entry

effectively what has happened is ABC has got the benefit of lower price thru discount but has taken Full ITC on the relevant supply, since ITC reversal is ruled out as the supplier has not adjusted its output gst thus the 2A will also reflect the credit so no need to reverse ITC, by ABC

being a financial transaction on discount amount ABC needs to discharge the GST as this will also offset the excess ITC taken by ABC initially against the out put gst to be discharged now on this discount

AI Summary

GST on price difference: delinked financial credits may attract tax as independent supplies if no invoice adjustment is made. If a supplier issues a price difference as a financial credit without reducing taxable value or issuing an invoice linked credit note, the adjustment is delinked from the original supply: the recipient need not reverse Input Tax Credit tied to that invoice but should treat the price difference as an independent receipt and discharge GST on it as a supply; conversely, if the price difference is a true discount or an invoice overcharge, purchase cost and ITC should be adjusted and statutory invoice adjustment provisions applied within the allowed timeframe.