TaxTMI 
TaxTMI 
2022 (1) TMI 901
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.... the same provision under the MPGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act. BRIEF FACTS OF THE CASE AND SUBMISSION OF THE APPLICANTS IN THEIR APPLICATION IS AS UNDER- 3.1 The Applicant is having the dealership of famous rice brand name of India known as "India Gate Basmati Rice" since last more 15 years. That for the purpose of brevity, the supplier of India Gate Basmati Rice to the applicant shall be called as "Supplier". 3.2 As a routine, supplier dispatches the goods along with invoice. The supplier offers the incentive for early payment of invoice (bills) by offering a cash discount if payment is made before the due date or with in the certain days from the date of invoice inter alia: - S. No. Terms of payment Rate of discount 1. Within 2 days 2% 3.3 That the Applicant makes the payment as per his convenience and availability of funds. Thus, the scheme/incentive of cash discount in case of early payment from the due date is optional for applicant. On the basis of time taken for payment of invoices by the app....
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....known at that point of time whether supply against the invoices will be considered for the discount and also whether the applicant will take the benefit of cash discount or not. Similarly, the rate /quantum of purchase made by applicant is also not known. It is a case of offering discount post supply falling under "Cash Discount not agreed before or at the time of supply". (iii) The applicant's draw kind attention to sub-sec 3 of section 15 of Central Goods And Service Act 2017 quoted as under,- "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". (iv) Applicant most humbly draw kind attention to sub-sec 1 of Section....
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....e found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed." iii. Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. It is hereby clarified that financial / commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note(s)can be issued as a commercial transaction between the two contracting parties. iv. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. v. In other words, value of supply shall....
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....eived the GST levied on 100% sale price by the supplier to the applicant then there is no loss to the exchanger if the applicant also claims the same as ITC without considering the reversal on account of financial / commercial credit note. (xii) At this conjunction, applicant most respectfully draw your kind attention to the advance ruling pronounced by the Hon'ble Kerala Authority for Advance Ruling, advance ruling no. KER/60/2019 dated 06.09.2019 in the case of M/s Santosh Distributors. The relevant issues and ruling pronounced by the Hon'ble Kerala Authority is as under:- o. Query: On the tax liability of the applicant for the transaction mentioned herein and explained as above. The applicant is paying the tax due as per the invoice value issued by the applicant and availing the input credit of GST shown in the inward invoice received by the applicant from the Principal Company or their stock list. Argument: The value of supply is governed by the provisions of section 15 of the CGST Act. The deduction of discounts from the value of taxable supply is subject to the conditions prescribed in sub-sec (3) of Section 15 ibid. In the case of the appli....
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....ount of commercial credit note. Therefore, applicant will be required to reverse the ITC to the extent of credit note of supply received by applicant from the supplier. (xv) In our considered view, amount of the credit note on account of credit note/ incentive will be treated as payment/ discharge of dues of the original invoice. In this regard we would like to discuss as under:- (xv)(1) The term 'failed to pay' or 'payment' has not been defined under the GST Law. In the present context, we can link the word failed to pay as payment of consideration. As per Section 2(31) of the CGST Act 2017, the term "consideration" in relation to the supply of goods or services or both includes:- (a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether ....
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....been effected: In this situation, the supplier may issue credit note for the discount amount plus the corresponding tax thereon as the transaction fulfils the conditions of section 15(3) (b) (i) of the CGST Act. Assuming that the credit note is issued with GST within the time line provided under section 34 (2) of the CGST Act, the supplier can exclude the discount from value of supply and also reduce his tax liability. In order to complete the process and enable the supplier to make adjustment in value of supply as well as tax liability, it is necessary for the recipient to reverse ITC on discount, as required under section 15 (3) (b) (ii) of the CGST Act. With such reversal, the tax paid and ITC availed against the same will matchat invoice level between the supplier and recipient. Where the supplier decides not to issue a credit note under section 34 of the CGST Act or is unable to issue the same due to non-satisfaction of any condition under section 34 of the CGST Act, then there would not be any reduction in output tax liability involved for the , supplier. Supplier may issue an accounting / commercial / financial credit note without impact of GST. Further, the recipient would ....
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....y the recipient where they are unable to perform the positive activity of having made the payment within the specified time limit. However, when the credit note is received which dispenses with the requirement of having to make further payment, no further action is required by the recipient to the extent of the value of credit note. when no action is required, there cannot be any inaction on the part of the recipient. The recipient should not be penalized when there is no failure or inaction. Therefore, there should not be any reversal of ITC. 4. Payment is also considered to have been made through book entry. There is no requirement of having a monetary consideration in each and every case. When the supplier's obligations are completed through a book entry, that itself can be considered as equivalent to payment. Where there are no pending obligations, there cannot be a failure to pay on the part of the recipient. 5. The mechanism of payment can be through netting of the payables and receivables. What is required to be paid is to be set off partly against receivables in the form of credit note from the point of view of the recipient. After this set off happens....
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....that extent. It finally says that the credit would be equivalent to the amount paid as tax. Though issued under earlier Acts, the circulars have persuasive value and they support the view that taxes paid and not subsequently reduced would be fully available to the recipient as credit. 10. Circular No.105/24/2019 - GST dated 28.06.2019, at para 5 provides:- "the dealer will not be required to reverse ITC attributable to the tax already paid on such post -sale discount received by him through issuance of financial /commercial credit notes by the supplier of goods --------- as long as the dealer pays the value of supply as reduced after adjusting the amount of post- sale discount plus the amount of original tax charged by the supplier". Though this Circular has been withdrawn by the Board ab-initio vide Circular No.112/31/2019 - GST dated 03.10.2019, in view of representations received expressing apprehensions on the implication (of other) clarifications given therein relating to treatment of secondary or post sale discounts, the aforesaid clarification adequately amplifies/ clarifies thinking on the part of Board that reversal of credit is not required in s....
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....al proposition and various rulings issued by the Authorities of Advance Ruling, applicant is of considered view that:- a. ITC should not be reversed by the applicant on account of credit note issued by the supplier to the applicant on account of cash discount/ target incentives without adjustment of GST. b. The commercial credit note received by the applicant from the supplier without adjustment of GST on account of cash discount/ target incentives should not be treated as separate supply and accordingly no GST is leviable as output supply. 4. QUESTION RAISED BEFORE THE AUTHORITY - The applicant is soliciting an advance ruling on the following issues/ ambiguities with regard to the applicability of GST provisions: - (i) Whether the applicant can avail the Input Tax Credit of the full GST charged on invoice of the supply or a proportionate reversal of the same is required in case of post purchase: - a. Cash discount for early payment of supply invoices(bills) given by the supplier of goods to the applicant without adjustment of GST. b. Incentive/schemes provided through credit note without adjustment of GST by the supplier to the ap....
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....s of this subsection, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. (3) 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 duty 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..........................." Therefore for cases where supply has already been effected, such discount given shall be in terms of prior agreement which was entered into between supplier and receiver at or before effecting supply of goods and is specifically linked to relevant invoices. Also, the ITC (as is due on account of such discount given, basis the document issued by the supplier) has to be reversed by the receiver. (B) Such discount sh....
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....n their returns in manner as prescribed, adjusting the GST liability in the course (ii) The recipient is on the other hand required to reverse the ITC attributable to such discount on the basis of Credit Note issued. (iii) When Supply is yet to be made or at the time of supply, then, such discount is required to be mentioned on the invoice itself, for it to not to be considered as part of transaction value for determination of Value of supply. (G) In the TNAAR Order No.5/AAR/2019 dated 22.01.2019, where Advance ruling was sought on "Whether the Applicant can avail the Input Tax Credit of the full GST charged on the supply of invoice or a proportionate reversal of the same is required in case of post purchase discount given by the supplier of the goods or services, a. the authority has re-iterated the existence of a prior agreement between supplier and recipient for the discount to be allowed and corresponding discounted value as the Value of Supply. If such an agreement is not established then the value of supply is the Undiscounted value mentioned in Invoice in cases of Post sale discount. b. The relevant observation of the TNAAR in the....
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....nts under GST". The Circular makes clear the GST implications upon secondary or post sale discounts. Relevant portion is reproduced as under:- "For the purpose of value of supply, post sales discounts are governed by the provisions of clause (b) of sub-section (3) of section 15 of the CGST Act. It is crucial to examine the true nature of discount given by the manufacturer or wholesaler, etc. (hereinafter referred to as 'the supplier of goods") to the dealer. It would be important to examine whether the additional discount is given by the supplier of goods in lieu of consideration for any additional activity / promotional campaign to be undertaken by the dealer. (iii) It is clarified that if the post-sale discount is given by the supplier of goods to the dealer without any further obligation or action required at the dealer's end, then the post sales discount given by the said supplier will be related to the original supply of goods and it would not be included in the value of supply, in the hands of supplier of goods, subject to the fulfilment of provisions of sub-section (3) of section 15 of the CGST Act. However, if the additional discount given by the s....
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.... that the dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received by him through issuance of financial / commercial credit notes by the supplier of goods in view of the provisions contained m second proviso to sub-rule (1) of rule 37 of the CGST Rules read with second proviso to sub-section (2) of section 16 of the CGST Act as long as the dealer pays the value of the supply as reduced after adjusting the amount of post-sale discount in terms of financial / commercial credit notes received by him from the supplier of goods plus the amount of original tax charged by the supplier" In the instant case, per-se point 3 of Circular No. 105/24/2019-GST dated 28.06.2019. if the post-sale discount is given by the supplier of goods lo the dealer without any further obligation or action required at the dealer's end, then the post sales discount given by the said supplier will be related to the original supply of goods and it would not be included in the value of supply, in the hands of supplier of goods, subject to the fulfillment of provisions of sub-section (3) of section 15 of the CGST Act, the applicant receives cash ....
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....stment of GST by supplier. For clarify the questions raised by the Applicant, we discuss the issue one by one in foregoing paras. 7.3 On this issue whether the discount included in the value of supply or not, we go through the provision of sub-sec 3 of section 15 of Central Goods aid Service Act 2017 which reproduced below:- "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". As per the Section 15(3)(b) of CGST Act, for the cases where supply has aIready been effected and discount given after supply shall be in term of prior agreement before effecting supply of goods and specifically linked to relevant invoices, then such discount shall not ....
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....upplier/Principal Company does not satisfy the conditions prescribed in sub-section (3) of Section 15 of the CGST/SGST Act; the supplier is not eligible to reduce the original tax liability. As the supplier of the goods is not reducing the original tax liability, the applicant will be eligible to avail the credit of the tax paid as per the invoice of the supplier subject to payment of the value of supply as reduced by the commercial credit notes plus the amount of original tax charged by the supplier. In other words, the applicant will not be required to reverse proportionate input tax credit. 7.8 Further, we observe that the Applicant when purchase more than his target is eligible for the incentive which is provided by the supplier in the form of a credit note without affecting the sale price of the goods purchased and GST paid on the invoices. Hence, the amount received by the Applicant is in the form of an incentive provided by the supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same. Further, as per the condition of Section 15(3)(b) of CGST Act, the value of supply not included the discount in terms o....