GST on Post Sale Discount

[Murari Agrawal]

I have gone through most of the discussions on the subject on this forum. It is clear that discount can be reduced from the taxable value only if the conditions under sec.15(3)(b) are satisfied. For any post sale discount without previous agreement, Supplier has to issue financial credit note without GST.

My only question is whether the buyer will have to reverse the ITC to the tune of such post sale discount. This question arises in my mind due to following:

1) In 2019 (3) TMI 928 AAR, Tamilnadu (Re:MRF), it has been held that ITC has to be reversed for the amount not paid due to discount in the light of proviso to Sec.16

2) Circlular C.B.I.& C. No.92/11/2019 GST dated 07.03.2019, under Heading Secondary Discounts - clause (vi), says that there is no impact of availability or otherwise of ITC in the hands of Supplier. However, there is no mention whether or not it affects the recipient/buyer.

AI Summary

Input tax credit reversal depends on whether post sale discounts alter taxable value under prior agreement linkage or remain commercial adjustments.
Whether buyers must reverse input tax credit for post sale discounts turns on whether the discount qualifies to reduce taxable value under the prior agreement and linkage criterion. If it does, the supplier issues a tax credit note and the recipient must reverse proportionate ITC. If it does not, suppliers commonly issue financial/ commercial credit notes without GST effect and recipients generally retain the ITC originally claimed, provided there is no misuse or fraudulent invoice inflation.