GST APPLICABILTIY ON VALUE REDUCTION ( ON PREV SUPPLY)

[ABHILASH PANICKER]

Dear Sir/Madam,

Kindly advise is GST Applicable on Value Reduction ., ( that on previous supplies )

Recipient (Customer ) debited only basic amount (Apr to May22)., As they already passed the amount in higher side & GST Benefit taken on full value.

Regards

[Shilpi Jain]

Query is not clear. Aspect to be noted is that gst is applicable on SUPPLY. not mere reduction of value.

More clarity on query required

[Rajagopalan Ranganathan]

Sir,

If the seller reduces the price only without claiming refund of GST already paid then the recipient need not reverse the ITC of gst paid on the full value. If the seller claims refund of differential gst arising due reduction in price then receipient is required to reverse the itc og gst proportionate to the reduction in price.

[Amit Agrawal]

As facts and context of the query is not clear, I am taking liberty to presume certain things to share my views.

I am presuming that said value reduction is nothing but post-sale discount agreed between buyer and seller. And, if so, my views are as under:

Section 15 deals with 'Value of Supply' and sub-section (3) reads as follows:

"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."

If it is post-sale discount which can NOT be established (another presumption of mine, as query is not clear) "in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices", then, buyer is within its right to raise 'commercial / accounting debit note' (please note that it is not a debit-note u/s 34 of the GST) towards 'Basic Value' towards discount (which does not include GST portion).

Similarly, in above circumstances, seller should raise corresponding 'commercial / accounting credit note' (please note that it is not a credit-note u/s 34 of the GST) towards 'Basic Value' towards discount (which does not include GST portion).

An in such a scenario, neither buyer needs to reverse any ITC nor seller gets any re-credit towards taxes.

And also, question of any output tax-liability against such 'discount' does not arise as there is no supply against subject 'discount'.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

In simple words and in a nutshell, you have paid to your customer from your own pocket. Hence neither question of 'supply' nor question of 'discount' arises.

[KASTURI SETHI]

When 'supply' is not in picture, there is no question of any discount.

[YAGAY andSUN]

If you are shrinking you profit margin to sustain the customers, then, no issue to reverse the propionate ITC and if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC. Even discount do have a different accounting treatments.

[Amit Agrawal]

With due respect, I do not agree with the legal proposition that " .... if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC"

I find that there is no legal basic for above-said proposition. If one is selling / supplying at a loss, there is no legal requirement per se to reverse ITC against the loss in my humble view.

If such selling price is not the sole consideration, of-course, one needs to use appropriate valuation-rule to arrive at 'Value of supply' so to arrive at total tax-liability against output supply.

And, if the supply is that of capital goods, one also needs to look into Section 18 (6) (read with rules 40 & 44) to determine tax-liability against output supply of capital goods.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

There is a substance in your views.

[YAGAY andSUN]

Just wait and watch how these unwritten laws unfold.

[Amit Agrawal]

Thank you, Shri Kasturi Sethi Ji!

In my respectful submission and in continuation of my earlier post, one cannot rely upon unwritten laws to demand reversal of ITC merely for supplying goods / services at a loss.

[Amit Agrawal]

I wish to also add & admit that I do not have any ability what-so-ever to interpret 'unwritten laws' and I also cannot envision such 'unwritten law' will unfold in future. So, all my views should be seen in the context of these limitations of mine.

[YAGAY andSUN]

Unwritten Laws = Interpretations, understanding and reading between the lines and words.

[Amit Agrawal]

I would call it interpretation of 'written laws' & not that of 'unwritten laws'.

Anyway, Sir, & in context of my post at serial No. 7, request you to please elaborate why you think that '.... if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC".

I am just trying to understand what I missed while interpreting, understanding and reading between the lines and words.

Thanks!

[Amit Agrawal]

Very gentle reminder & request, M/s Yagan & Sun!

Reason being, I tried everything to understand what I missed (if any) while interpreting, understanding and reading between the lines and words.

But, despite efforts, I could not find anything a miss to deviate from position/s taken by me in my post at serial No. 7 above.

[Amit Agrawal]

*M/s Yagay & Sun. Apology for typing error.

[YAGAY andSUN]

Please wait and watch as related issues/litigations are pending at various level.

[Amit Agrawal]

With all due respect, pending disputes / litigation is hardly a ground - for me - to deviate from my views.

This is more so when no legal provision (and interpretation thereof) is presented to explain why ITC needs to be definitely reversed merely because tax-payer supplied some goods / services at a loss.

Moreover and as said in my post at serial No. 7 above, once there is no charge of undervaluation (Examples of charge / reason of undervaluation: price is not sole consideration, recipient & supplier being related) or situation is not that of supply of capital goods to be covered u/s 18 (6), even question of demand of differential taxes against outward supply also does not arise.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion. And I fully respect contrary views.

[Amit Agrawal]

Unwritten Laws = Non-existent laws

AI Summary

GST on post-supply discounts: recipient reversals required only if supplier claims GST refund; otherwise no ITC reversal. Whether GST is triggered by a post supply price reduction depends on whether the reduction adjusts the taxable value of supply and whether tax adjustments are claimed. Post supply discounts can be excluded from value only if agreed at or before supply and linked to invoices, and the recipient reverses ITC attributable to the discount. If the supplier reduces price without claiming GST refund, the recipient need not reverse ITC; if the supplier claims a GST refund for the differential, the recipient must proportionately reverse ITC.