2022 (1) TMI 901 - AAR - GST

Input tax credit - Reversal of Credit - volume discount / Cash discount received on purchases - volume discount received on retail (on sale) - Levy of GST on issuance of credit note as cash discount - HSN Code - Cash discount for early payment of supply invoices(bills) given by the supplier of goods to the applicant without adjustment of GST - Incentive/schemes provided through credit note without adjustment of GST by the supplier to the applicant - HELD THAT - 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. As per of Circular No 92/11/2019-GST 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 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. As per GST Act the applicant has to made self assessment of the supplies made by them and also proper ITC availed therefore it is mandatory on the part of the applicant to ensure that the supplier by giving the discount through commercial credit note has not reduced their output tax liability post sale i.e. at the time of filing annual return. If the supplier reduced their output tax liability than the applicant is mandatory required to reverse the proportionate ITC - the Applicant is not providing any service to the supplier and is only receiving the incentive/discount. Indirectly it has an effect on the sale price of the goods purchased by the Applicant from the supplier and is actually in the form of discount. It is found that no GST is leviable on the said discounts received from the supplier.

Summary

Issues Involved:
1. Whether the applicant can avail the Input Tax Credit (ITC) of the full GST charged on invoices or if a proportionate reversal is required in case of post-purchase cash discounts and incentives/schemes provided through credit notes without GST adjustment.
2. Whether GST is leviable on cash discounts offered through credit notes without GST adjustment.
3. Whether GST is leviable on incentives/schemes provided through credit notes without GST adjustment.

Detailed Analysis:

1. Availment of ITC on Full GST Charged on Invoices:
The applicant sought clarity on whether they can avail ITC on the full GST charged on invoices when cash discounts and incentives are provided post-purchase through credit notes without GST adjustment. As per Section 15(3)(b) of the CGST Act, discounts given after supply shall not be included in the value of supply if they are established in terms of an agreement entered into at or before the time of supply and specifically linked to relevant invoices, and if ITC attributable to the discount has been reversed by the recipient. The applicant argued that the cash discounts and incentives are not part of the purchase contracts or invoices and are determined post-supply, hence not requiring ITC reversal. The ruling confirmed that since the discounts are not as per prior agreement, no proportionate reversal of ITC is required, provided the supplier does not reduce their output tax liability.

2. GST on Cash Discounts:
The applicant questioned whether GST is leviable on cash discounts offered through credit notes without GST adjustment. The ruling referred to Circular No. 92/11/2019-GST, which clarifies that secondary discounts not known at the time of supply shall not be excluded while determining the value of supply. Since these discounts are not part of the original supply agreement, they do not affect the value of supply, and thus, no GST is leviable on such cash discounts.

3. GST on Incentives/Schemes:
The applicant also inquired about the GST applicability on incentives/schemes provided through credit notes without GST adjustment. The ruling stated that these incentives are not considered separate supplies but are discounts on the original supply. Therefore, no GST is leviable on these incentives, provided there is no adjustment of GST in the credit notes.

Conclusion:
The ruling concluded that the applicant can avail the ITC of the full GST charged on the invoices without proportionate reversal for commercial credit notes issued for cash discounts and incentives if these discounts are not covered under Section 15(3)(b) of the CGST Act and are not as per prior agreement. Additionally, no GST is leviable on cash discounts and incentives/schemes offered through credit notes without GST adjustment, as these are not considered separate supplies. The ruling is subject to the provisions under section 103(2) and remains valid until declared void under Section 104(1) of the GST Act.