The applicant is engaged with M/s Gold Medal Electricals Pvt. Ltd. for purchasing various electronic products.
The seller issues a tax invoice including charges of GST, calculated according to the provisions stated in Section 15 of the CGST Act, 2017. The applicant stated that the supplier has settled GST dues and duly filed GSTR-3B for the relevant period.
Over time, the applicant has received different types of incentives categorized as “discounts” from the supplier. These included Turnover Discount, Quantity Discounts, Cash Discounts, Additional Scheme Discounts, and 3 Months regular scheme discounts, all effective from the date of registration up to the present. These discounts are after-sale in nature. For all these discounts, the supplier has issued financial/commercial credit notes without applying GST, solely for accounting purposes.
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The applicant has properly accounted for these financial credit notes and the distributors have disclosed them in their Income Tax Returns. The supplier does not reduce its output tax liability concerning these financial/commercial credit notes as stated in Section 15 which does not make it subject to exclude “Post Supply Discounts” from the transaction value. Additionally, the supplier has submitted an affidavit stating the non-reduction of GST liability due to these credit notes.
The Applicant Seeks Clarifications on a Few Things That Are Stated Below:
- Can the applicant rightfully claim full GST charge based on the tax invoice issued by the supplier, and the GST paid by such sellers to the government even if subsequent commercial/financial credit notes are issued for portions of the invoice amount?
- Is it necessary for the applicant to reverse the Input Tax Credit (ITC) proportionally under the financial/commercial credit notes issued by the supplier?
Recognising Advance Ruling:
- Affirmative
- Negative, given the dealer settles the value of the supply as reduced post the inclusion of the post-sale discount, in terms of the financial/commercial credit notes received from the supplier of the goods, along with the original tax amount charged by the supplier.
| Case Title | M/S. Vedmutha Electricals India Private Limited |
| Citation | AAR No.05/AP/GST/2023 |
| GSTIN | 37AACCV5041K1Z6 |
| Date | 26.05.2023 |
| Represented By | Madhu Jain |
| Andhra Pradesh AAR | Read Order |
In my view, the supplier should have charged GST on the various discounts given subsequent to his sale.
In the T & C of the purchase order the discounts should have been mentioned.
Reversal of GST by purchasing company is not required as the onus is on the supplier to charge the GST on credit note. But as a prudent business practice, the purchaser should not accept the credit note without the GST in them.
One point to be noted is whether cash discounts were part of the PO or not. Depending on the clause being there in the PO or not, the liability of the purchaser on GST payment can be determined.