GST on cash discount, incentives or schemes offered by supplier without adjustment of GST
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Case Details: |
Mahaveer Prasad Mohan Lal |
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Advance Ruling No.: |
Advance Ruling No. 01/2022 |
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Ruling pronounced by: |
GST AAR Madhya Pradesh |
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Date of Ruling: |
06-01-2022 |
Brief Facts:
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The applicant is having a dealership of the famous rice brand “India Gate Basmati Rice” for the last 15 years. The supplier (India Gate) offers the incentive for early payment of invoices by offering a cash discount if payment is made before the due date or within certain days from the invoice. The supplier issues the Receipt cum credit note for cash discount without considering GST on such cash discount. |
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Similarly, the supplier offers a target incentive to the applicant on achieving the target of sales. The credit note is issued for this target incentive by the supplier without considering the GST in the form of the commercial credit note. The supplier does not reverse its output tax liability of GST and likewise, the applicant does not reverse its tax credit on such commercial credit notes issued by the supplier to the applicant without considering GST. |
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This discount arrangement or target scheme is not part of the purchase contracts or the invoices as it is not known at that point of time whether the supply against those 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 by the 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”. |
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Further, the applicant put reliance on the ruling of Hon’ble AAR West Bengal in Re: M/s Senco Gold Ltd. [2019 (5) TMI 701] which ruled out as: “The applicant can pay the consideration for inward supplies by way of setting off-book debt. The GST Act and rules made there under do not restrict the recipient from claiming the ITC where consideration is paid through book adjustment, subject to the conditions and restrictions as may be prescribed and, in the manner, specified in Sections 16 and 49 of the GST Act”. Therefore, when a commercial credit note is issued by the supplier to the applicant and his account is adjusted in the books, it will suffice as ‘payment’ made by the recipient, and no ITC reversal is required to be done by the recipient. The applicant also referred to ruling in the case of M/s Kwality Mobikers Pvt. Ltd. Advance Ruling No. Kar ADRG 76/2018 dated 24.09.2019. |
Observations:
As per Circular No. 92/11/2019-GST dated 07.03.2019, it is further clarified that secondary discounts which is not known at the time of supply 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. In other words, the value of supply shall not include any discount by way of issuance of credit note except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied. There is no impact on the availability or otherwise of ITC in the hands of the supplier in this case.
As per the submission of the Applicant, we observe that the commercial credit notes issued by the supplier do not satisfy the conditions prescribed in section 15(3) of the CGST Act; the supplier is not eligible to reduce the original tax liability. As the supplier of 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 the proportionate ITC.
Question & Ruling:
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Question |
Ruling |
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Whether the applicant can avail the ITC of the full GST charged on the invoice of the supply or a proportionate reversal of the same is required in case of: -
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The applicant can avail the ITC of the full GST charged on the invoice and no proportionate reversal of ITC is required in respect of commercial credit note issued by the supplier for a cash discount and incentives/ schemes provided without adjustment of GST if the said discount is not covered under section 15(3)(b) of CGST Act, 2017 and the said discounts are not in terms of prior agreement. This is subject to the conditions that the GST paid for the said goods/ service is not reversed or reimbursed/ re-credited by the supplier to the applicant in any manner. |
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Whether GST is leviable on cash discount offered by the supplier to the applicant through credit note without adjustment of GST for making the early payment from the date stipulated for payment of such supply as output supply? If yes, what are the applicable HSN and the rate of GST, and whether GST is leviable on incentives/ schemes provided through credit note without adjustment of GST by the supplier to the applicant as output supply? If yes, then what are the applicable HSN and the rate of GST? |
Since the amount received in the form of the credit note is actually a discount and not a supply by the applicant to the supplier, no GST is leviable on the receiver on cash discount/incentives/ schemes offered by the supplier to the applicant through credit note against supply without adjustment of GST.
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Disclaimer: The article is based on the ruling of Hon’ble AAR Madhya Pradesh and is meant for educational purposes only. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article.
