Cash discount/incentive/schemes offered by supplier not liable for GST
Fact and Issue of the case
Shri Rajesh Gupta, proprietor of M/s Mahaveer Prasad Mohanlal is carrying on the business of whole sale trading of rice and pulses. Henceforth, for brevity Shri Rajesh Gupta, proprietor of M/s Mahaveer Prasad Mohanlal shall be called as “Applicant”. Applicant is having the dealership of famous rice brand name of India known as “India Gate Basmati Rice” since last more than 15 years.
The provisions of the CGST Act and MPGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act.
The 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”.
Observation of the Authority
The Authority observe that in the similar matter in case of M/s Kwality Mobikers P Ltd (2019(30)GSTL 668(AAR-GST) AAR Karnataka, in case of MRF limited (2019(27) GSTL 578(App.AAR-GST) Appellate authority of advance Ruling Tamilnadu, in case of M/s Santosh Distributors (2020(32)GSTL 105(AAR GST Ker), the authority have given the ruling in favour of Applicant. 7.7
The Authority observe that 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 per the submission of the Applicant we observe that the Commercial Credit Notes issued by the supplier/Principal Company does not satisfy the conditions prescribed in sub-section (3) of Section 15 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.
Further, we observe that the Applicant when purchase more than his target is eligible for the incentive which is provided by the supplier in the form of a credit note without affecting the sale price of the goods purchased and GST paid on the invoices. Hence, 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. The agreement 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.
Further Additional Commissioner, Jabalpur has submitted their reply on the applicant submission and asserted that as per Circular No.92/11/2019-GST dated 07.03.2019. , 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.122/03/2010 dated 30.04.2010 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 output tax liability.
As per GST Act the applicant has to made self assessment of the supplies made by them and also proper ITC availed therefore it is mandatory on the part of the applicant to ensure that the supplier, by giving the discount through commercial credit note, has not reduced their output tax liability post sale i.e. at the time of filing annual return. If the supplier reduced their output tax liability than the applicant is mandatory required to reverse the proportionate ITC. Further in respect of other questions, the Applicant is not providing any service to the supplier and is only receiving the incentive/discount. Indirectly, it has an effect on the sale price of the goods purchased by the Applicant from the supplier and is actually in the form of discount. We finds that no GST is leviable on the said discounts received from the supplier.
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 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.
In respect of Question 2 & 3, 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 receiver on cash discount/incentive/schemes offered by the supplier to applicant through credit note against supply without adjustment of GST.
The ruling is valid subject to the provisions under section 103 (2) until and unless declared void under Section 104 (1) of the GST Act.