ITC can't be denied under GST even when post-supply discounts received: AAR

Value of supply would stand reduced, while tax liability remains as it is: Andhra authority

Input tax credit would not be denied under the goods and services tax (GST) system even when a company receives post-supply discounts, provided the entire tax liability is paid, the authority for advance rulings (AAR) in Andhra Pradesh has ruled.

Vedmutha Electricals, a distributor of electronic goods, sought advance ruling whether it can claim a full credit on the original invoice amount even if the discount is not reflected in the invoice.

The company regularly receives post-supply discounts from its supplier under various schemes such as turnover discount and quantity discount. For discounts, the supplier has raised financial or commercial credit notes without GST for accounting purposes only.

 

These notes were accounted for by Vedmutha Electricals and also disclosed by distributors in their Income Tax returns.

The supplier does not reduce its output tax liability in respect to these notes as GST provisions don't permit exclusion of post-supply discounts from transaction value.

Vedmutha also sought to know whether it is required to reverse the input tax credit proportionately to the extent of the financial or commercial notes issued by the supplier.

The AAR ruled that the company can avail of full discounts as these do not affect the value of the input tax credit and reflect a reduction in the price of the goods.

As a result, while the tax liability remains as it is, the value of supply would stand reduced, said the AAR.

Additionally, the full amount of GST is applicable on the original transaction value remains paid to the government, there is no revenue loss to the exchequer, it said.

Accordingly, availability of input tax credit in the hands of the recipient should not get blocked due to commercial post-supply discounts, the AAR ruled.

The court also ruled that Vedmutha is not required to reverse the input tax credit provided the dealer pays the value of the supply as reduced after adjusting the amount of post-sale discount in terms of financial or commercial credit notes received by him from the supplier of goods plus the amount of original tax charged by the supplier.

Saurabh Agarwal, tax partner at EY, said the ruling is significant relief for businesses as it will help in settling disputes regarding commercial credit notes which do not reduce the GST liability.

While the ruling is only binding on the assessee it would have a persuasive value in other cases, he said.