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GST APPLICABILTIY ON VALUE REDUCTION ( ON PREV SUPPLY), Goods and Services Tax - GST

Issue Id: - 118018
Dated: 28-6-2022
By:- ABHILASH PANICKER
GST APPLICABILTIY ON VALUE REDUCTION ( ON PREV SUPPLY)

  • Contents

Dear Sir/Madam,

Kindly advise is GST Applicable on Value Reduction ., ( that on previous supplies )

Recipient (Customer ) debited only basic amount (Apr to May22)., As they already passed the amount in higher side & GST Benefit taken on full value.

Regards

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Posts / Replies

Showing Replies 1 to 15 of 18 Records

1 Dated: 28-6-2022
By:- Shilpi Jain

Query is not clear. Aspect to be noted is that gst is applicable on SUPPLY. not mere reduction of value.

More clarity on query required


2 Dated: 28-6-2022
By:- Rajagopalan Ranganathan

Sir,

If the seller reduces the price only without claiming refund of GST already paid then the recipient need not reverse the ITC of gst paid on the full value. If the seller claims refund of differential gst arising due reduction in price then receipient is required to reverse the itc og gst proportionate to the reduction in price.


3 Dated: 28-6-2022
By:- Amit Agrawal

As facts and context of the query is not clear, I am taking liberty to presume certain things to share my views.

I am presuming that said value reduction is nothing but post-sale discount agreed between buyer and seller. And, if so, my views are as under:

Section 15 deals with 'Value of Supply' and sub-section (3) reads as follows:

"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."

If it is post-sale discount which can NOT be established (another presumption of mine, as query is not clear) "in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices", then, buyer is within its right to raise 'commercial / accounting debit note' (please note that it is not a debit-note u/s 34 of the GST) towards 'Basic Value' towards discount (which does not include GST portion).

Similarly, in above circumstances, seller should raise corresponding 'commercial / accounting credit note' (please note that it is not a credit-note u/s 34 of the GST) towards 'Basic Value' towards discount (which does not include GST portion).

An in such a scenario, neither buyer needs to reverse any ITC nor seller gets any re-credit towards taxes.

And also, question of any output tax-liability against such 'discount' does not arise as there is no supply against subject 'discount'.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.


4 Dated: 29-6-2022
By:- KASTURI SETHI

In simple words and in a nutshell, you have paid to your customer from your own pocket. Hence neither question of 'supply' nor question of 'discount' arises.


5 Dated: 29-6-2022
By:- KASTURI SETHI

When 'supply' is not in picture, there is no question of any discount.


6 Dated: 30-6-2022
By:- YAGAY andSUN

If you are shrinking you profit margin to sustain the customers, then, no issue to reverse the propionate ITC and if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC. Even discount do have a different accounting treatments.


7 Dated: 4-7-2022
By:- Amit Agrawal

With due respect, I do not agree with the legal proposition that " .... if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC"

I find that there is no legal basic for above-said proposition. If one is selling / supplying at a loss, there is no legal requirement per se to reverse ITC against the loss in my humble view.

If such selling price is not the sole consideration, of-course, one needs to use appropriate valuation-rule to arrive at 'Value of supply' so to arrive at total tax-liability against output supply.

And, if the supply is that of capital goods, one also needs to look into Section 18 (6) (read with rules 40 & 44) to determine tax-liability against output supply of capital goods.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.


8 Dated: 4-7-2022
By:- KASTURI SETHI

Sh.Amit Agrawal Ji,

There is a substance in your views.


9 Dated: 4-7-2022
By:- YAGAY andSUN

Just wait and watch how these unwritten laws unfold.


10 Dated: 4-7-2022
By:- Amit Agrawal

Thank you, Shri Kasturi Sethi Ji!

In my respectful submission and in continuation of my earlier post, one cannot rely upon unwritten laws to demand reversal of ITC merely for supplying goods / services at a loss.


11 Dated: 4-7-2022
By:- Amit Agrawal

I wish to also add & admit that I do not have any ability what-so-ever to interpret 'unwritten laws' and I also cannot envision such 'unwritten law' will unfold in future. So, all my views should be seen in the context of these limitations of mine.


12 Dated: 4-7-2022
By:- YAGAY andSUN

Unwritten Laws = Interpretations, understanding and reading between the lines and words.


13 Dated: 4-7-2022
By:- Amit Agrawal

I would call it interpretation of 'written laws' & not that of 'unwritten laws'.

Anyway, Sir, & in context of my post at serial No. 7, request you to please elaborate why you think that '.... if there is reduction in the selling price lower than of cost price then definitely you will have to reverse the ITC".

I am just trying to understand what I missed while interpreting, understanding and reading between the lines and words.

Thanks!


14 Dated: 6-7-2022
By:- Amit Agrawal

Very gentle reminder & request, M/s Yagan & Sun!

Reason being, I tried everything to understand what I missed (if any) while interpreting, understanding and reading between the lines and words.

But, despite efforts, I could not find anything a miss to deviate from position/s taken by me in my post at serial No. 7 above.


15 Dated: 6-7-2022
By:- Amit Agrawal

*M/s Yagay & Sun. Apology for typing error.


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