GST ON POST SUPPLY DISCOUNT

[tejas kulkarni]

one of my automobile dealer has received commercial credit note in form of performance incentive/ target incentive.Now A.O. is charging output Gst on commercial credit note treating it post supply discount without any agreement with company.

In reply, I offered him latest judgement of Hon. madras high court in case of M/s Supreme Paradise - 2024 (2) TMI 351 - MADRAS HIGH COURT where it is clearly mentioned that Unless discount is offered on acocunt of subsidy, it can not form of Transaction value. I also quoted circular No 92/11/2019 where it is clarified that no tax on commercial credit note will be charged.

But A.O. denied the submission and charged tax. Pls guide.

[KASTURI SETHI]

Have you received any letter or SCN or is it all verbal ?

[tejas kulkarni]

Actually gst audit proceedings u/ 65 are in process. During audit offy raised this point.

[KASTURI SETHI]

Dear Querist,                       

To understand the issue, you should peruse the paras no.7.4 & 7.5 of the following decision of AAR, A.P. Although this decision is applicable to the applicant only, yet it has persuasive value.

2023 (6) TMI 1051 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH - IN RE : VEDMUTHA ELECTRICALS INDIA PVT. LTD.

[KASTURI SETHI]

Only the absence of contract is not sufficient to prove that the transaction value has not been influenced by way financial /commercial credit note . Your books of account must prove that outward tax liability has not been reduced.  

[Sadanand Bulbule]

Dear querist

I fully agree with clear opinions of Sh. Sethi Sir.

[Shilpi Jain]

It's pretty difficult to explain and make understand department officers. 

If it's a discount then no GST should apply. If officer does not understand, you have no choice but to take notice and defend.

[Sadanand Bulbule]

Well said Shilpi madam. Many a times it is impossible to convince the departmental officers who carry empty skulls. May God save merits!

[KASTURI SETHI]

The burden of proof is cast upon the person who avails exemption from tax  or concessional rate of tax/duty------ the Supreme Court.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, This is with reference to your opinion at serial no. 7 above. Human skull can never be empty as it consists of brain (can be likened to 'hardware' ) and mind (can be likened to 'Sofware' ) both. So the said registered person should discharge burden of proof.

All is not bad. Still honesty, integrity and sincerity exist in India. Isn't it, Sir ?

[Sadanand Bulbule]

Dear Sirji

My referral  of "empty skulls" was not in its literal meaning.But despite having the brain, many officers refuse to apply it. That's my bitter experience. Merit should not be murdered by diseased minds. Otherwise it is grave injustice to the humanity.

Sky is not empty. Still stars spark and glitter. That is the bright promise of dark nights. With this, I agree with your views Sir.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Thus the word, 'empty skull' signifies 'empty of moral values'. This is the root cause of your bitter experience. 

[Sadanand Bulbule]

Dear Sir ji

As I have studied, the GST era is not just another tax reform. Rather it has sensitized peoples' lives like never before. The problem is not with the GST law per se. But many officers are still unwilling to understand and accept the basic objects of it. Unless there is refined thinking, tremors of hyper-interpretation continues to be the  common feature of its administration. It's like being crazy for fruits [revenue] without reverence to roots [law]. Bitter experience is not only mine but of countless victims, of course untold.

Thus " Empty skull" symbolises lifelessness. What sprouts from lifelessness, there is no need to explain.

Regards

 

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

                        Sir, I fully agree with your outpourings and genuine pangs.

[Ganeshan Kalyani]

Sir, if the recipient i.e. company is able to take credit, you can raise an tax invoice with GST and you pay it and ask the company to claim credit. The officer's concern will be addressed. Explore this please.

[harish varun]

Dear [Authority Name],

I am writing to address the matter concerning the output GST charged on the commercial credit notes received by one of our automobile dealers in the form of performance incentives/target incentives. The Assessing Officer has treated these as post-supply discounts without any agreement with the company, leading to the imposition of tax.

In our defense, I would like to bring to your attention the latest judgment by the Honorable Madras High Court in the case of M/s Supreme Paradise - 2024 (2) TMI 351 - MADRAS HIGH COURT. The court clearly stated that unless the discount is offered on account of a subsidy, it cannot form part of the transaction value. This judgment supports our position that the performance incentives/target incentives, provided as commercial credit notes, should not attract GST as they do not constitute a subsidy.

Additionally, I would like to reference Circular No. 92/11/2019-GST, which clarifies that no tax should be charged on commercial credit notes. This circular explicitly states that commercial credit notes issued by the supplier to the recipient are not subject to GST as long as they do not meet the criteria for discounts specified under Section 15 of the CGST Act.

Considering these points, it is evident that the performance incentives/target incentives provided as commercial credit notes do not qualify as post-supply discounts that attract GST. Therefore, the imposition of output GST on these commercial credit notes is not justified.

I kindly request a reconsideration of the decision to charge tax on these commercial credit notes in light of the aforementioned legal provisions and judicial precedent.

Thank you for your understanding and cooperation in this matter.

Yours sincerely,

[Your Name]

[Your Contact Information]

[Padmanathan KV]

Without going through the actual audit para raised, it would be difficult to express a solid opinion. It would be pertinent to know on which angle the Audit Officer is charging output tax. Is it by way of treating the Commercial CN amount as consideration for a fresh supply? If it is to increase the value of supply already made, on what grounds? etc.. 

[SARTHAK GUPTA]

Respected Seniors,

Is Purchase Orders Are Capable to Considered As Pre-Agreement-Condition of Post Supply Discount. 

Any Case Laws for this to Support.

[KASTURI SETHI]

Sh.Sarthak Gupta Ji,

Answer is 'yes' provided that a purchase order must contain terms & conditions indicating the conditions of post-sale discount.

[KASTURI SETHI]

Also go through Section 74 of Indian Contract Act, 1872. Even verbal agreement/contract is also legally valid provided it is supported by documentary evidence e.g. email, phone etc.

[SARTHAK GUPTA]

Thank you sir for your reply but i am stuck in a situation where appeal authority rejected my appeal on the grounds - “I have meticulously gone through the 'Purchase Orders' produced by the Appellant, I find that these purchase orders contain details of Brokers/Agents, through whom the said supply transactions were supposed to take place. Here, I wish to address that whenever a transaction takes place through a commission agent or a broker, especially of Mandi crops/commodities, it cannot be affirmed that when would such a transaction take place and between whom, i.e., it is not known before the supply, that who would be the recipient. Thus, if the transactions are carried out through a broker, then it cannot be said that the transaction has occurred under an agreement or a contract. Therefore, the arguments regarding considering the purchase orders as good as a pre-agreement or a contract document; placed by the Ld. AR are not found to be reinforced by the actual facts of the matter under dispute, nor are supported by the provisions stipulated in GST Law, hence I find no force in these contentions raised by the Appellant and hence the documents produced by the Appellant are not acceptable.”

AI Summary

GST treatment of commercial credit notes requires evidentiary proof to avoid output tax as post supply discounts
Commercial credit notes given as performance or target incentives are not automatically taxable as post supply discounts; taxability depends on whether they alter the transaction value or arise from subsidy/discount terms. The onus is on the person claiming non taxability to prove outward tax liability was not reduced, using books of account, documentary evidence (including purchase orders or pre sale terms), and persuasive rulings or circular guidance. Practical measures include evidencing absence of discount terms, accounting entries showing no change in consideration, issuing tax invoices if recipient can claim input credit, and litigating audit assessments with targeted evidence.