*In the Favour of Taxpayer*
Whether cash discount/incentives given by the supplier to the recipient amounts to discounts under Section 15(3) of CGST Act 2017. If so whether supplier is required to reduce its outward tax liability and correspondingly does the recipient also needs to reverse ITC claimed on original invoices.
AAR, Madhya Pradesh in case of M/s Rajesh Kumar Gupta has held that in order to arrive at whether any discount or incentive needs to be reduced from the value of supply, the provisions of Section 15(3) needs to be considered. AAR held that in order reduce such discounts from the value, the two conditions i.e. 1) There must be prior agreement and 2) the Fact of discount must be mentioned on the invoice must be fulfilled. But in case of cash discounts for early payments or bulk discounts/incentives there recipient is unaware about the invoices against which he might be eligible. When the recipient remains in dark and there is no clarity over the discounts, no reversal of ITC is required. Moreso, in cases where the supplier has issued commercial credit note without reducing its output tax liability, there arises no question of reversal of ITC by the recipient. Further where the recipient pays the value of invoice as reduced by the amount of discount/incentive along with taxes on original value of supply, there shall be no question of failure to make payment by the recipient.
The ruling has taken forward the matter already decided in earlier judgments of Senco Gold and MRF. The ruling has rightly held that where the supplier has not reduced its output liability, there arises no question of reversal of ITC by the recipient. It is matter of fact that the discounts/incentives are not known at the time of tax invoice rather they are received upon fulfilling the prescribed conditions.
The ruling will come as a respite for large number of dealers who work for large OEMs and are facing the similar issue during audits by the GST Department
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