Clarity regarding GST & ITC is much required by any Company and industry, Big or small, as it touches the Economy part of the Businesses. GST Council has constantly endeavoured to make the process crystal clear and gave proper clarification regarding any discrepancy. The motive behind is to make the Businesses run smoothly as they are the major contributors in the GDP as well as the Council also focuses on the smooth Revenue collection through taxation.
Many industries and sectors have faced challenges from the inception of the GST Rules in the Country and time are evident, that the problems have been resolved as well. Among such industries are the Tyre industry and this time it is the leader of the Tyre industry, the MRF.
In Tamil Nadu, the tyre industry leader MRF went to meet the authorities of ARA, the Tamil Nadu Advance Ruling Authority to get clarification regarding ITC. They sought clarification regarding ITC that if the Company could legally avail ITC on the entire GST which has been charged on the supply of the invoices.
The clarification came with a no delay from the Tamil Nadu Advance Ruling Authority (ARA) that the Company could avail ITC only up to the value of the invoice in question. They could not make a claim for ITC on the discounts which the vendors offer on the connecting interface software.
Now we will see what has been the strategy of the MRF company regarding marketing and sales. The Company get subscribed to an online platform, C2FO, which is a bridge between the buyer and the vendors. Those vendors who are registered with the e-platform offers a discount, be it be an annual percentage rate or a flat discount. This strategy has been adopted to make the payment by the customer happen Asap. what happens that, the Algorithmic Software picks up the invoices for discount bases which various discounts offers could be offered to the customers.
So finally, MRF has to approach ARA to get clarification as to whether it could legally avail of ITC on the complete GST which is charged bases the supply of invoice or they could only claim for a proportionate reversal of the tax in the case where the vendor offers to its customers a post-purchase discount conditioned, the customer pays earlier.
Read Also: GST: CBIC Agrees ITC Eligibility on Sales Promotion Schemes
ARA generated a clear statement regarding this and said that the Company is liable to avail of ITC only up to the extent of the invoice value raised by the supplier from which the discounts would be deducted which has been given by the C2FO software.
Manasa Gangotri Kata and S Vijayakumar said that in the case where the ITC has been claimed on the full amount, the difference should be got reversed.
As per an expert, a commercial credit note, which is generally without GST adjustment, is issued by Companies for the price adjustments in the cases of post-supply discount. In such scenarios, it is the Company which is supposed to discharge GST on the entire value of supply.
ARA stood strong in the MRF case and stated that even if the Company is paying GST on the full value of the supply, proportionate credit would not be available to the recipient of such supply.
Abhishek Jain, the tax partner at consultants EY India, said: “Most businesses had taken a contrary position on this and claimed the input tax credit of the entire GST paid by the supplier. The (central) government should consider an explicit clarification on the issue, to avoid any unwarranted and prolonged litigation on this aspect.”
