No input tax credit for post-supply discounts: AAR

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Published: March 19, 2019 1:20:47 AM

The authority for advance ruling (AAR) in Tamil Nadu has ruled that a firm would have to reverse the input tax credit (ITC) proportionate to the post-purchase discount extended by a supplier even if the buyer has paid full GST on the transaction.

No ITC for post-supply discounts, rules AARNo ITC for post-supply discounts, rules AAR

The authority for advance ruling (AAR) in Tamil Nadu has ruled that a firm would have to reverse the input tax credit (ITC) proportionate to the post-purchase discount extended by a supplier even if the buyer has paid full GST on the transaction. This is contrary to the prevalent industry practice, tax experts said.

To extend discounts after the supply has been made, various companies currently issue a commercial credit note (a credit note without adjustment of GST) for price adjustments in scenarios like post-supply discounts. The buyer pays GST on the full value of supply and doesn’t usually claim a reduction of GST of the amount relating to the reduction in value.

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However, AAR has ruled that even though GST is paid on the full value, proportionate credit (as much pertains to the GST applicable on the value of commercial credit note) would not be available to the recipient of supply.

Abhishek Jain, tax partner at EY said: “Most businesses had taken a contrary position on this and had claimed ITC of the entire GST paid by the supplier. The government should consider issuing an explicit clarification on the said issue to avoid any unwarranted and prolonged litigation on this aspect.”

According to the application filed by Chennai-based MRF in AAR, the firm is offered certain discount from its vendors in lieu of early payments. This is a post-supply discount which does not have any impact on the tax liability of the supplier, and MRF pays discounted price to vendors together with full GST to be charged on original price.

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