AAR has ruled that the recipient has to reverse ITC proportionate to the discount amount relying of third proviso to Section 16(2)(d) of the CGST Act,2017.

“Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.”

It is interesting to note that the term ‘payment’ has not been defined in the Act.

Consideration is defined as given below:

2(31) “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 by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

• It says that any payment made in money or otherwise
• Whether by the recipient or any other person

Otherwise will cover various modes resulting in payment including in kind, barter, exchange etc. It can be made by the recipient of any other person. The term any other person is not defined in the act. The term any other person is of wide import which can cover any person other than the recipient. It can also cover the supplier when he foregoes any amount payable against such supply. Thus, the Discount offered by the supplier merits to be covered as payment made ‘otherwise’

Accordingly, the ruling of the AAR can be appealed to the appellate authority. Further in the instant case, there is no loss to the government and the recipient is taking credit of the tax charged in the invoice by the supplier.

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Further the Circular No. 92/11/2019-GST dated 7^th March 2019 recogonises issue of Financial / Commercial credit notes

“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.”

It means that such credit notes are out of GST and will not have any impact on GST

But different views in line with the ruling of AAR is also possible

In view of the above, the impugned ruling of AAR in the case of MRF may requires reconsideration.

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Balasubramanian n