The Madhya Pradesh Authority of Advance Ruling (AAR) in its ruling in the case of M/S Mahveer Prasad Mohanlal has ruled that GST is not leviable on Cash discounts received from the supplier and no ITC reversal is required in cases where incentives/discounts are received through commercial credit notes without reversal of GST by the supplier.
Facts of the Case:
The Applicant, Rajesh Kumar Gupta of M/S Mahveer Prasad Mohanlal is having the dealership of a famous rice brand name of India known as “India Gate Basmati Rice” since last more than 15 years.
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 within the certain days from the date of invoice.
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.
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. Supplier doesn’t reverse the its output liability of GST and likewise applicant doesn’t reverse its input tax credit on such commercial credit notes issued by supplier to applicant without consideration of GST.
Issues on which ruling was sought:
The applicant sought an advance ruling on the following issues/ ambiguities with regard to the applicability of GST provisions: –
(i) Whether the applicant can avail the Input Tax Credit of the full GST charged on invoice of the supply or a proportionate reversal 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?
Order of AAR: Deliberation and Ruling
- AAR observed that the Commercial Credit Notes issued by the supplier/Principal Company does not satisfy the conditions prescribed in Section 15(3) of the CGST/SGST Act; the supplier is not eligible to reduce the original tax liability. 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.
- AAR also noted that the amount received by the Applicant is in the form of an incentive provided by the supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same. Further, as per the condition of Section 15(3)(b) of CGST Act, the value of supply not included the discount in terms of agreement entered into at or before the supply. We find that no proportionate reversal of ITC is required on the said discount as they are not as per prior agreement.
- The AAR noted that the Applicant is not providing any service to the supplier and is only receiving the incentive /discount.
In view of the above deliberations, the AAR held that the applicant can avail the Input Tax Credit of the full GST charged on the invoice of the supply, and no proportionate reversal of ITC is required in respect of commercial credit note issued by the supplier for Cash discount for early payment of supply invoices(bills) and Incentive/schemes provided without adjustment of GST, if the said discount is not covered under Section 15(3)(b) of CGST Act, 2017 and the said discounts is not in terms of prior agreement. This is subject to the conditions that the GST paid for the said goods/service is not reversed or reimbursed / re-credited by the supplier to the applicant in any manner.
Further AAR held that since the amount received in the form of credit note is actually a discount and not a supply by the applicant to the supplier, no GST is leviable on the receiver on cash discount/incentive/schemes offered by the
supplier to applicant through credit note against supply without adjustment of GST.
READ / DOWNLOAD ORDER:
***
Subscribe to our portal and get FREE Tax e-books, quality articles and updates on your e-mail.
Resolve your GST queries from national level experts on GST free of cost.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
