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TMI Blog2022 (1) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant is having the dealership 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 target incentive being quoted as under:- "If any distributor achieves the yearly target then incentiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". (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 supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the hands of supplier in this case." (viii) The circular has categorially denied deduction of any discount which does not satisfy the condition contained in clause (b) of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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) ibdi; the supplier is not eligible to reduce the original tax liability. As the supplier of goods is not reducing the original tax liability the applicant will be eligible to avail the credit of the tax paid as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 definition of 'consideration' provides the scope and ambit for modes of payment to the supplier. The definition is so wide that almost no form of payment is excluded. Thus, payment means transfer of any asset to the payee for discharging any obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC 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, generally referred to as financial or commercial credit note, but since the requirements of section 15 (3) (b) of CGST Act are not met, the supplier cannot reduce the discount from the value of supply and accordingly he cannot reduce his corresponding tax liability on discount amount. Thus, what he p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 recipient, he has no option but to simply accept the credit note raised by the supplier, there should not be any penalty leviable on such recipient. Thereby, no reversal of ITC should be made by the recipient. 7. Financial credit notes are subject to mutual dealings between the supplier and the recipient. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 GST Act and rules made there under does not restrict the recipient from claiming the input tax credit when consideration is paid through book adjustment, subject to the conditions and restrictions as may be prescribed and, in the manner, specified in Sections 16 and 49 of the GST Act" (xvii) From the above case it is cleared that applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 GST? (iii) Whether GST is leviable on incentive/schemes provided through credit note without adjustment of GST by the supplier to the applicant (dealer) as output supply? If yes, then what is the applicable HSN and rate of GST? 5. DEPARTMENT'S VIEW POINT- The Additional Commissioner(Tech) CGST & Central Excise, Jabalpur has submitted the comments on the question raised by the applicant in their application vide F.No.GEXCOM/TECH/GST/474 dated 22.10.2021 which is produced as under:- "(A) Section 15 of the CGST Act, 2017 defines the Value of Taxable supplies/services made/received under the Act. As per Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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) Furthermore, in cases involving Post supply discounts the proportionate ITC should also be reversed by the receiver with the relevant GST adjustment taking place at the end of supplier in terms of Section 34 CGST Act, 2017. (D) in the instant case, as per Section 34 of the CGST Act,2017, it is observed that a supplier can issue a Credit Note under following conditions:- (a) Where taxable value charged in taxable invoice/s is found to exceed the taxable value or tax payable in respect of such supply, or (b) Where goods supplied are returned by recipient, (c) Where goods or services or both supplied are found to be deficient. Also, there is no reduction in output tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 liability, along with interest thereon, and 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. In the instant case, the value of supply is the full undiscounted value indicated in the tax invoice and the recipient /Applicant only makes payment to the extent of invoice value less the discount thrown up by the C2FO software As per proviso to Section 16, the recipient is entitled to avail the credit of input tax on the payment made by him alone and if any amount is not paid as per the value of supply and the recipient has availed full input tax credit, the same would be add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional 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 services, would be required to charge applicable GST on the value of such additional discount and the supplier of goods, being recipient of services, will be eligible to claim input tax credit (hereinafter referred to as the "ITC") of the GST so charged by the dealer. (iv) It is further clarified that if the additional discount is given by the supplier of goods to the dealer to offer a special reduced price by the dealer to the customer to augment the sales volume, then such additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to the customer. This additional discount as consideration, payable by any person (supplier of goods in this case) would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives 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 applicant submission at point.4 Annexure-2, "The supplier also offered various schemes, one of them termed as target incentive. The term of target incentive being quoted as under:- "If any distributor achieves the yearly target then incentive will be given on value sold only " The credit note is issued for this target incentive by the supplier to applicant without considering the GST in the form of commercial credit note." 3. In terms of above submission, it can be inferred that applicant is receiving target incentive from their supplier for achieving the Yearly Target. In this scenario, it is also pertinent to note that the credit note in above condition are being issued after sale has taken place. In the circumstances this office is of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versed 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 reversing the GST payable. He further submitted that this discount arrangement is not part of the Purchase Contracts or the invoices since it is not known at that point of time of supply, whether supply against the invoices will be considered for the discount or not. Similarly, the rate /quantum of purchase made by applicant is also not known. 7.5 Further as per of Circular No 92/11/2019-GST. It is further 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 prior agreement. 7.9 Further Additional Commissioner, Jabalpur has submitted their reply on the applicant submission and asserted that as per Circular No 92/1 1/2019-GST , the discount can only be availed if all the conditions mention in the Section 15(3) of the Act are met. Further, they have also given detailed provisions of Circular No. 105/24/2019 - GST dated 28.06.2019 in their submission. CBIC vide Circular No. 112/31/2019 GST- withdrawn, ab-initio. Circular No. 105/24/2019-GST dated 28.06.2019. As detailed above, the supplier and applicant have not fulfilled the condition of Section 15(3) of the Act therefore, the benefit of reduced price by way of discount is not available to them. Therefore, supplier has not issued GST credit note under Section 34 of the Act and has not lowered his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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