QUESTION

In terms of section 16 of CGST Act, the tax payer is not entitled to ITC if he doesn't make payment within 6 months. Further he becomes entitled to the extent the payment has been made. What happens to his ITC if the other person allows discount? Take an example: I purchased goods worth Rs. 1000 + GST 180 in March 2019; and availed credit of full ITC in the return for March. I made full payment in July 2019. (Rs. 1180). In December 2019 the vendor grants me a discount of Rs. 100/-. Am I required to reverse proportionate ITC?

ANSWER

Facts of the Case:
Reversal of ITC in case discount is given subsequent to supply

Law applicable:
Circular No. 92/11/2019-GST
D. Secondary Discounts

i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet.

ii. The provisions of sub-section (1) of section 34 of the said Act provides as under:
'Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed.'

iii. Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. It is hereby clarified that financial / commercial credit note (s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note (s) can be issued as a commercial transaction between the two contracting parties.

iv. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied.

v. In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied.

vi. There is no impact on availability or otherwise of ITC in the hands of supplier in this case.

Interpretation: In your case as the discount is given after supply and it is not known at the time of supply therefore the same shall not be excluded from the value of supply as the conditions given in Section 15(3)(b) are not satisfied.

Conclusion: It will not impact the eligibility of ITC thus you are not required to reverse ITC.