GST applicability on primary & securities incentives income arise from commercial credit notes

[JIGAR SHAH]

Case :

Dealer purchase goods from the Manufacturer. On achievement of certain sales or fulfilling certain criteria manufacturer issued a commercial credit note to the Dealer as Primary & Securities Incentives.

Such commercial credit notes are issued without GST as per section 15(3)(b) Post supply discount, The Supplier, can issue a commercial credit note for the value of the discount. In such a scenario, the buyer will not be required to reverse any input tax credit.

Such commercial credit notes are issued without GST and dealer treat the same as Primary and securities incentives income as direct income. Manufacturer not claim any credit and dealer not made in credit reversal.

Issue :

Whether a dealer is required to charge GST on such Primary & Securities Incentives or is there any different treatment for Incentive income? Whether section 15(3) include discounts as well as incentives?

Kindly clarify the GST applicability on the above transaction.

[Rajendra Prasad]

Dear All,

This is a controversial issue. In my view if the dealer is getting incentive on achieving the purchase target it will not amount to outward supplies. Hence no GST is applicable.

If the dealer is getting incentive on achieving certain amount of SALES , it MAY be taxable. (request the experts to give more clarity on it).

To avoid controversies in future following are my suggestions.

Ask the seller to give the reasons for credit note on credit note.

1. Raise the tax invoice on the supplier (or)

2. Advise the supplier to change the nomenclature so that there will no harassment from the department at a later date.

3. Advise the supplier to issue credit note along with tax revsersal.

[Ganeshan Kalyani]

Sec. 15(3) The value of the supply shall not include any discount which is given––

(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.

The above mentioned provision states that the discount can be reduced from the taxable value of sales, if the given conditions are satisfied. If the conditions are not satisfied then the discount cannot be reduced from the taxable sales value. These conditions are provided for the applicability of GST on discount. Discount pertains to sales. Discount is subject to sales. So , in my view, the discount which is received post sales namely volume discount is not an income. It is an adjustment to the sales value. Therefore, it should be netted off from the sales value in the books of account. It should not be accounted as an income. Because it is not an income.

[JIGAR SHAH]

Thank You!

AI Summary

Post-supply discounts under GST may be excluded from taxable value if conditions are satisfied. Whether commercial credit notes issued as incentives attract GST depends on their character and compliance with section 15(3). Discounts excluded from taxable value are those recorded in the invoice at or before supply or post-supply discounts established by agreement linked to invoices where the recipient reverses input tax credit. Incentives for purchase targets may not be outward supplies, while incentives linked to sales may be taxable. Proper documentation and ITC reversal convert post-sale incentives into sales value adjustments rather than income.