Treatment of incentives under GST law

[Rajat Gupta]

Hello experts,

A taxpayer receives multiple incentives in the form of discounts & promotional activity reimbursements from its supplier without charging GST. The amount of discounts/incentives is separately credited by the supplier through commercial credit notes. Although there is no written agreement for this, the supplier grants a discount based on the monthly purchases made by the taxpayer.

My query is whether the taxpayer needs to reverse GST on the incentive portion or not. If not, can the revenue treat this incentive as consideration received by the taxpayer for some support services to the supplier? 

AI Summary

Suppliers' post-supply discounts without predetermined agreements don't require input tax credit reversal under Section 15(3)(b) CGST Act A taxpayer receives discounts and promotional activity reimbursements from suppliers without GST charges, credited through commercial credit notes based on monthly purchases without written agreements. Legal experts clarified that since discounts weren't predetermined at supply time per Section 15(3)(b) CGST Act, suppliers issued financial credit notes rather than GST credit notes, eliminating the taxpayer's obligation to reverse input tax credit. Revenue departments incorrectly issue show cause notices treating such discounts as taxable consideration, but this contradicts transaction value definitions and established legal precedents including recent Madras High Court ruling in Tvl.Shivam Steels case.