TMI Blog2022 (1) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, value of supply shall not include any discount by way of issuance of credit note(s) 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 availability or otherwise of ITC in the hands of supplier in this case. The value of taxable supply is governed by the provisions of Section 15 of the CGST/SGST Act. The deduction of discounts from the value of taxable supply is subject to the conditions prescribed in sub-section (3) of Section 15 ibid. In the case of the applicant, the supplier of goods is issuing Commercial Credit Notes for cash discount for early payment and quantity discount after post supply without adjustment of GST - 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip 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 applicant to the supplier, the supplier issues the Receipt cum credit note of cash discount without considering GST on such cash discount. 3.4 The supplier also offered various schemes, one of them termed as target incentive. The term of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 34 of Central Goods And Service Act 2017 as under:- Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b)of sub-section (3) of section 15 of the said Act are satisfied. vi. There is no impact on availability or otherwise of ITC i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 applicant the supplier of goods/principal company is issuing commercial credit notes for reimbursement of the scheme discount provided by the applicant to the customer as per the instructions of the supplier. Since the commercial credit notes issued by the supplier/ principal company do not satisfy the conditions prescribed in Section 15(3) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 o 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. The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not be liable to reverse the ITC for the reasons provided in Point B below. (B) Discount not known or agreed at or before the time of supply is given by the supplier post sale due to certain business exigencies which were not considered earlier or where discount cannot be specifically linked to respective Invoices: In such a situation, the supplier can issue credit note for the discount amount, gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 and the balance payment is made, both the parties are relieved of their obligations. Thereby the payment is already considered to have been made. As a result, failure to pay cannot arise in such a situation. 6. Raising of the credit note is a unilateral action by the supplier. It is the prerogative of the supplier whether to raise a credit note within the GST law or a financial credit note without GST. Where due to no fault of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such cases. From the above, it can fairly be said that where credit note is received without GST, it is not necessary for the recipient to reverse ITC attributable to the value of discount. (xvi) The applicant further draws your kind attention to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicant. (ii) Whether GST is leviable on cash discount offered by supplier to 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, then what is the applicable HSN and rate of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should be document based for it to be not included in Value of supply whether before or after supply takes place. For instances where discount is given before supply is effected such discount is to be mentioned in the Invoices itself. The discount should be clearly and specifically attributable to invoices issued in respect of supplies effected. (C) Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 matter is reproduced for reference Proviso to Section 16 states that where a recipient fails to pay to the supplier of goods or services or both, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supplier of goods to the dealer is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition etc, then such transaction would be a separate transaction and the additional discount will be the consideration for undertaking such activity and therefore would be in relation to supply of service by dealer to the supplier of goods. The dealer, being supplier of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed 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 discount offered by supplier to 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 then Since, there involves no further obligation or action at dealers end, the post sales cash discount would not be included in the value of supply subject to the fulfillment of provisions of subsection (3) of section 15 of the CGST Act. (J) As per appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 include in the value of supply and ITC has to reversed by the receiver. There are two condition to satisfy the Section 15(3)(b) of CGST Act, firstly discount given after supply of goods shall be in term of prior agreement and secondly it should be linked to the relevant invoices. 7.4 We observe that in this case, the applicant submitted that the cash discount and Incentive/scheme provided by the supplier was through credit note post purchase without rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 of agreement entered into at or before the supply. The agreement must be written or oral. In this case, the Applicant has not submitted any agreement with supplier but in their submission submitted that the said discount is not as per prior agreement and on the basis of submission of applicant that the said discount is not in terms of prior agreement, we find that no proportionate reversal of ITC is required on the said discount as they are not as per p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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