No GST on cash discount for early payments by dealer, rules M.P. AAR

Incentive for early cash payment by the dealer will not attract GST ruled the Madhya Pradesh’s Authority for Advance Ruling (AAR) as technically, such issue comes under the category of secondary or post-sales discount

This is contrary to earlier rulings by Kerala AAR.

In the present matter, the applicant, Rajesh Gupta (Proprietor of M/S Mahaveer Prasad Mohanlal), is wholesale trading of rice and pulses and dealer of ‘India Gate Basmati Rice.’ The supplier offers him a cash discount if payment is made before the due date or within certain days from the invoice date. Then, there is a target incentive.

The applicant sought advance rulings on whether he can avail the Input Tax Credit (ITC) of the full GST charged on the invoice of the supply or a proportionate reversal of the same is required in case of post-purchase cash discount (for early payment of supply invoices(bills) given by the supplier of goods to the applicant without adjustment of GST) or Incentive/schemes (provided through credit note without adjustment of GST by the supplier). He also wanted to know whether GST will be applicable on cash discount incentives/schemes offered by suppliers to the applicant through credit notes without adjustment of GST.

After going through submissions, facts and arguments, AAR held that the applicant could 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 (Related with inclusion of discount in the valuation of supply) 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 cant in any manner,” it said

It also held that since the amount received in the form of the credit note is 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 the applicant through credit note against supply without adjustment of GST.

Earlier, Kerala AAR (in the matter of Santhosh Distributor) had held that GST to be applicable on the amount received by the distributor as reimbursement of discount/rebate from the principal company. This was later upheld by AAAR.

According to Harpreet Singh, Partner, Indirect taxes at KPMG in India, because of the conditions attached for claiming post-sale discount deduction under GST, the same has been a bone of contention between the authorities and taxpayers. This case law has rightly concluded that where GST is not reversed/ deducted on discount through commercial credit notes, the same should not entail any GST implications. “There have been rulings in the past, where recipient of incentives have been held to be liable to GST on the amounts received by them, treating the same as consideration for supply of services. This ruling has rightfully negated that logic,” adds Singh.

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