Reversal of ITC by provider of goods or services on post-purchase discount
Fact and issue of the case
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
The subject appeal is filed under Section 100(1) of the Tamilnadu Goods & Services Tax Act 2017/Central Goods & Services Tax Act 2017 (hereinafter referred to the Act’) by M/s. MRF Limited (hereinafter referred to as `MRF’ or ‘Appellant). The appellant is registered under GST vide GSTIN 33AAACM4154G1ZU. The appeal is filed against the Order No.5/AAR/2019 dated 22.01.2019 passed by the Tamil Nadu State Authority for Advance ruling on the application for advance ruling filed by the appellant.
The Appellant has stated that they intend to enter into an arrangement with M/s. C2F0 INDIA LLP( hereinafter referred as C2F0), a subsidiary of Pollen Inc, having its Indian Office at, 303, OIA House, 470, Cardinal Gracious Road, Andheri (East), Mumbai — 400099, Maharashtra, India for setting up an interactive automated data exchange which can be installed for data interaction relating to sale & purchase of goods and services between a buyer (the Appellant) and a supplier (any supplier of goods or input services of the appellant) in compliance to various ethical, accounting and business standards. Both the supplier and recipient of goods or services should register on the platform provided by C2F0. The goods and /or services are delivered and the invoice is booked in ERP and marked as approved to pay.
The Appellant was granted personal hearing as required under law before this Appellate Authority on 30th May 2019. The Authorized representative of the Appellant Shri. S.Karthik, Advocate and S/ Shri. Nagaraja- GM-IDT, S.K.Patnaik, GM-Taxation and Subhajit Das, DGM- Taxation of the Appellant Company appeared for hearing. They handed out a compilation of Statutory Provisions , Circulars and Case Laws. The learned representatives reiterated the written submissions submitted along with the Appeal Application filed by them.
Observation of the court
We have carefully considered the various submissions made by the Appellant and the applicable statutory provisions. The issue before us for determination is whether, the appellant ie M/s MRF, the buyer of the goods and/or services, can avail the ITC of the full GST charged on the undiscounted supply invoice or a proportionate reversal of the same is required to be done by them in case of a post purchase discount given by the supplier to them through the C2FO platform.
From the submissions we find that the appellant intends to enter into an arrangement with C2FO for setting up an interactive automated data exchange which can be installed for data interaction relating to sale & purchase of goods and services between a ‘buyer (appellant) and a ‘supplier’ (any supplier of goods or input services of the appellant). By entering into the platform, the supplier will be agreeable to offer certain discount in return for an early payment of an invoice. The quantum of discount offered is not known at the time of supply of goods/ services and therefore a “cash discount not agreed before or at the time of supply”. It is the contention of the appellant that the taxable value for the purpose of payment of GST will be the value as per purchase contract without considering such discount so offered and the supplier is liable to pay tax on the value before discount. We find that the Appellant is in agreement with this end of the transaction relating to what constitutes the value on which GST is to be paid. It is further seen that the discount offered through the transactions on the said platform is settled through commercial credit notes only. The point of contention is that the appellant claims to be eligible for the entire undiscounted GST paid by the Supplier while the original Authority has ruled that the Appellant will be eligible only to the credit proportionate to the amount of value paid by them (i.e. the discounted price), even though the Appellant has stated to pay the entire GST raised in the Invoice (i.e., tax on the undiscounted price). The Appellant has relied on Circulars issued by CBIC in the regime of Central Excise and Service Tax and decisions of Judicial Fora and have claimed that in as much as there is a post-invoice reduction in price, they are still eligible for the credit of entire Tax paid by the Supplier.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
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