credit note

[CABIJENDERKUMAR BANSAL]

A Pvt Co. has given bulk purchasing incentive scheme to its distributors/dealers as follows: If any dealer buys goods of ₹ 1 crore or more in FY 2019-20, Company will give Europe Holiday package for couple for 4 days. But after covid 19 situation company decided to give incentive in monetary form in shape of credit note of equivalent amount . What will be GST implication, if any? 2. Can company give commercial credit note instead of gst credit note?

[YAGAY and SUN]

In our view, If it is commercial credit note, then, GST is not required to be charged and reversed accordingly. However, issuance of Commercial/Financial credit note still can be issued (i.e. supplier of the goods) despite of withdrawn of Circular CGST 105 by Circular no. 112, as issuance of Commercial/Financial credit note is allowed vide Circular No. 92 which is still active and live.

[KASTURI SETHI]

This incentive scheme is a sort of quantity discount. It is post-supply (sale) discount.Such discount is allowed provided that your buyer must be in the know of such discount prior to or at the time of supply of the goods. Commercial credit note can be issued. Issuing credit note is a method to pass on the discount to the buyer. See Section 15(3)(b)(i) & (ii) of CGST Act. It must be linked to invoice.

More details are available in the article titled "Detailed Note on credit Note" authored by Sh.Ganeshan Kalyani. It was published on 26.6.19 in Article Section of TMI.

[Ganeshan Kalyani]

Sri Kasturi Sir, I am glad to see that you have mentioned about my write-up on the credit note. It encourages me. Thanks Sir.

[Ganeshan Kalyani]

Dear Querist ,the link to the article is given here. Just click here Detailed Note on Credit Note to read it.

[KASTURI SETHI]

Dear Sh.Ganeshan Kalyani Ji,

With reference to your expression at serial no.3 above, I am selfish ! I saved my labour and time by writing just one sentence instead of a comprehensive reply. Your article contains all solutions to the query of credit notes. I recalled your article.

[Ganeshan Kalyani]

Thanks Sri Kasturi Sir once again. I recalled my earlier days when you would send me suggestions and suggest corrections wherever I committed error. Thanks for those support Sir.

[janakiram kota]

The querist has asked two questions- one is the implication of gst in his hands and the second is whether the supplier can issue commercial credit note instead of gst credit note. My view is that if the amount of discount was shown in the invoice at the time of sale and excluded from the value of sale then he need not reverse the input credit. Assuming that it is a post sale discount and the actual amount of discount was not known at the time of sale was not known (is quite possible) the querist has to reverse the input tax credit as is attributable to the value of the discount. As regards to the methodology adopted by the supplier n issuing the credit note - commercial or gst one has not much relevance here. The supplier and recipient are two independent dealers under the act. Two separate assessing officers would audit the books of the supplier and recipient and they would look into whether there is leakage in the respective auditee's books. So if the querist had availed the input credit in the first instance he has to reverse the proprionate input credit .

[YAGAY and SUN]

Incentives cannot be treated as par with Discounts as both are different terms as per the Mercantile Laws. Incentive Scheme always operate at the end of the year when CFAs,Distributors and dealers accounts are being reconciled for checking their eligibility for getting incentives etc. In this scenario, either issuance of commercial credit note or GST Credit note (charging and reversing ITC respectively) will do not have any impact as both will be ended up in revenue neutral exercises.

AI Summary

Post supply discount under GST: monetary incentives via credit note require invoice linkage and possible ITC reversal.
A distributor incentive converted into a monetary credit note is a post supply discount: if the discount was disclosed in the invoice at or before supply (excluded from taxable value) no input tax credit reversal is required; if the discount is determined after supply, the recipient must reverse the proportionate input tax credit. Suppliers may issue commercial credit notes, but discounts must be linked to invoices and tax positions adjusted consistently.