GST on Post Sales Discount

[NISHANT SHAH]

Dear All Experts,

One of my client want to give turnover discount for financial year 2020-21. As such, there was not any pre-contract for giving such discount before any sales made.

Whether GST is leviable on such discount by giving credit note?

Note: Turnover Discount is given against each invoices raised to customer/recipient in 2020-21.

[Rajagopalan Ranganathan]

Sir,

According to Section 15 (3) (b)-

"the value of the supply shall not include any discount which is given 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."

You have stated that there was not any pre-contract for giving such discount before any sales made. Therefore condition No. 3 (b) (i) is not satisfied in your case. Therefore the discount given by you after supply of goods was completed cannot be claimed as deduction from the transaction value.

[Mr Rao]

Dear querist,

Section 15(3) of the CGST Act, 2017 allows deduction of discount from the value of supply. The exclusion mainly depends on the timing of the discount i.e., the time at which the discount is given by the supplier. In other words, if the discount given before or at the time of supply, the supplier would be entitled to claim the benefit of discount if the same is disclosed in the invoice. In case where the discount is given after the supply is effected, the supplier would be eligible for the deduction of the same, if the following conditions are satisfied:

(a) Discount given must be established in terms of agreement entered into at or before the time of such supply;

(b) It must be linked to the relevant invoices; and

(c) Input tax credit pertaining to same is reversed by recipient. In the light of the above, the discount you are mentioning is liable for GST, assuming that the conditions (a) to (c) not satisfied.

[NISHANT SHAH]

Dear Sir,

As I said, Discount given is linked to all invoices raised to party pertaining to Year 2020-21.

[NISHANT SHAH]

Dear Sir,

Party is insisting not to levy GST because he is not interested to reverse ITC that he claimed in the year 2020-21.

Now, in this scenario, can we treat this transaction as financial credit note by not levying GST on same??

[KASTURI SETHI]

SH.NISHANT SHAH Ji,

The following circular will answer to your query:- (see para no.D)

Sales Promotion Schemes under GST - Clarification on various doubts

C.B.I. & C. Circular No. 92/11/2019-GST, dated 7-3-2019

[KASTURI SETHI]

If discount is not known prior to supply, financial credit note can be issued without GST. Also go through the decision of AAR-Karnataka in the case of Kwality Mobikes Pvt. Ltd. = 2019 (10) TMI 792 - AUTHORITY FOR ADVANCE RULING, KARNATAKA decided in 2019.

[NISHANT SHAH]

Thanks Shethi Sir and all experts..

[ABHISHEK TRIPATHI]

Dear All,

Can anyone explain the treatment of such incentive/discount under the Income Tax Act?

AI Summary

Post sales discount GST treatment: exclusion requires pre supply agreement, invoice linkage and reversal of input tax credit.
Under Section 15(3)(b), a post supply discount can be excluded from transaction value only if it is established by an agreement entered at or before the time of supply, specifically linked to relevant invoices, and the recipient reverses input tax credit attributable to the discount; absent these conditions the discount cannot be deducted and GST is leviable, although some administrative guidance and an advance ruling have permitted financial credit notes without GST when discounts were not known prior to supply.