discount details on invoice, Goods and Services Tax - GST

[Rajendra karri]

Sir, iam a electronic goods dealer, i purchase goods for dealer price and sell for less

example: I purchase fridge for Rs.25,000/- from manufacturer and sell forRs. 24, 000/- to custmers.

The difference amount is compensated by manufacturer in the way of credit note of Rs.1500/- at month end . ultimetley i had earned 500?-Rs. The questions are

1) ITC for 1,000/- got accumulated with me, should i reverse this back...to whom?

2) Is it mandatory to raise invoice for Rs. 25,000/- to customer and mention the discount offered Rs1000/- on the invoice .

 

 

Posts / Replies

[Sadanand Bulbule]

In terms of Section 7 of the CGST Act, "supply" includes supply of goods or services or both for a consideration. Section 2(31) of the GST Act defines "consideration" to mean a payment made or to be made whether as money or otherwise in response to the supply of goods. To the extent of pre-supply discount allowed by the supplier in the tax invoice, no consideration can be said to be received whatsoever.

Further as per Section 9 of the GST Act, tax is to be levied on the value determined as per Section 15 of the Act. So refer Section 15(3)(b) of the CGST Act in conjunction with the clarification of the CBIC Circular No. 92/11/2019 dated 07/03/2019.

[YAGAY andSUN]

Thank you for clearly stating your business model — this is a very practical scenario and quite common in electronics and FMCG distribution chains. Let's carefully address your two questions under the GST framework in India.

📌 Business Summary (for clarity):

• You purchase a fridge from the manufacturer at ₹25,000 + applicable GST.
• You sell to the customer at ₹24,000.
• The manufacturer compensates you ₹1,500 at the end of the month via credit note.
• Your effective margin = ₹500.
• You are paying GST on your sale value of ₹24,000, but claiming ITC on ₹25,000.

Now let’s address your specific questions.

🔹 Question 1: Do I need to reverse ITC of ₹1,000 that got accumulated? If yes, to whom?

✅ Answer: No, ITC reversal is not required — if the following conditions are met:

1. You paid full GST on your purchase invoice (on ₹25,000).
2. The manufacturer issued a credit note for the ₹1,500 under Section 34 of the CGST Act with GST adjustment, and:
   • The credit note is reported in GSTR-1 by the manufacturer.
   • You accept the same in your GSTR-2B/GSTR-3B.

🔄 When Reversal Is Required:

If the credit note issued by the manufacturer does not reduce the GST component, and is a pure commercial credit note (non-GST impact), then:

• You retain full ITC.
• You do not reverse any GST.

But if GST is adjusted in the credit note (i.e., manufacturer reverses outward tax liability on that ₹1,500), then you must also reverse proportionate ITC (on ₹1,500, say 18% = ₹270) in your GSTR-3B.

🔧 Your case likely:

• Since your sale price is lower, and the manufacturer adjusts with a credit note, you must check:
  • Whether the credit note includes GST (i.e., is it ₹1,500 + GST or ₹1,500 inclusive?)
  • If GST is reduced, proportionate ITC reversal is mandatory.
  • Otherwise, if it’s a pure commercial incentive, no ITC reversal is needed.

So, check the credit note structure.

🔹 Question 2: Should I raise invoice at ₹25,000 and show ₹1,000 discount on the invoice?

✅ Correct Way Under GST:

Yes, you should issue tax invoice to the customer at actual transaction value, i.e., ₹24,000 (your selling price). However, two options are possible:

🔸 Option A – Invoice Value = ₹24,000 (No mention of ₹1,000 discount)

• You issue invoice for ₹24,000 (inclusive or exclusive of GST).
• No discount field shown.
• GST calculated on ₹24,000.

✅ This is fully compliant as per Section 15(1) of CGST Act — “transaction value is price actually paid or payable.”

🔸 Option B – Invoice Value = ₹25,000, Less ₹1,000 Discount = ₹24,000 (With discount shown)

• Invoice shows gross value of ₹25,000.
• Discount ₹1,000 is shown on the face of invoice as per Section 15(3)(a) of CGST Act.
• Net taxable value = ₹24,000.

✅ This is also valid only if discount is known at or before supply, and is recorded in the invoice.

🚫 What you should NOT do:

You should not raise invoice at ₹25,000, collect ₹24,000 from customer, and not show the discount — this would be misleading.

✅ Summary:

Issue	Answer
Reverse ITC of ₹1,000?	❌ Not required, unless GST credit note is issued by manufacturer. If yes, reverse proportionate ITC.
Invoice to customer	✅ Must be raised at actual selling price — ₹24,000, either directly or via discount shown on invoice.

SOP (Standard Operating Procedure) for this with invoice format and journal entries for business model involving discounted sales, manufacturer credit notes, and accounting reference.

✅ SOP for Selling Goods at Discounted Price with Manufacturer Compensation

Step No.	Business Activity	Details / Action Required	GST & Accounting Treatment
1	Purchase of goods from manufacturer	Goods purchased at ₹25,000 + GST (say 18%)	Claim full ITC on ₹25,000 in GSTR-3B
2	Sale to customer below cost price	You sell at ₹24,000 (your invoice value)	Issue invoice at actual transaction value (₹24,000). GST charged on ₹24,000.
3	Compensation from manufacturer	Manufacturer issues credit note of ₹1,500 at month end	Two possibilities: (a) With GST → You must reverse proportionate ITC (on ₹1,500) (b) Without GST → No ITC reversal needed
4	Invoice format to customer	Two options: - Option A: Invoice for ₹24,000 directly - Option B: Invoice for ₹25,000 with ₹1,000 discount shown	Both options valid under GST if discount is pre-agreed. Ensure discount is reflected on the invoice if you use Option B.
5	GST Return Filing	File GSTR-1 & 3B as per actual sale (₹24,000), and claim ITC accordingly	If GST credit note received, reverse ITC of GST on ₹1,500 (e.g., 18% = ₹270) in GSTR-3B
6	Accounting entries	Example (Option A): Purchase: Inventory A/c Dr ₹25,000 + ITC ₹4,500Sale: Bank/Cash A/c Dr ₹24,000Revenue A/c Cr ₹20,338GST Payable Cr ₹3,662Credit Note: Manufacturer A/c Dr ₹1,500	Maintain clear ledgers for ITC and credit notes. Reconcile with 2B monthly.

📌 Notes:

• Always verify whether the credit note issued by manufacturer includes GST.
• If you’re receiving only a commercial credit note, no ITC adjustment is needed.
• Keep all communication/agreements with manufacturer regarding post-sale incentives documented.

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