GST Update on Turnover Discount AAR Karnatak Kwality Mobikes (P) Ltd

GST Update on Turnover Discount AAR Karnatak Kwality Mobikes (P) Ltd - 011/2020-21

AAR Karnataka: - Kwality Mobikes (P) Ltd. [Turnover Discounts after Sales]

Issue Involved: -

The manufacturer of vehicle supplied has given the volume discount to authorised dealer on purchase of specified quantity but he has not effected GST on the same. The matter went before Advance Ruling and it was held that

1. The volume discount received on purchases in the form of credit note without any adjustment of GST is not liable for GST.
2. The volume discount received on retail (on sales) in the form of credit note without any adjustment of GST is not liable for GST.
3. Since the amount received in the form of credit note is actually a discount and not a supply by the applicant to the authorised supplier, the applicant need not issue tax invoice for this transaction.

Analysis-

Generally, manufacturer issues GST credit note to authorised dealers for volume discounts. Dealers have to reduce his ITC on the basis of credit note issued. But in instant case Authority for Advance Ruling has allowed manufacturers of vehicle to issue financial credit note (Non-GST credit note) for volume discount.

Relevant provisions and circulars/notification: -

As per Section 15(3), The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Hence, if the discount policy is known before or at the time of supply of goods as per terms and conditions then GST is to be effected. The manufacturer announces the policy of volume discount beforehand and then dealers lifts the vehicles to claim discount. Even dealer pass on the discount to his customers even before receiving discount from manufacturers as he is confirmed that he will receive the same as he has purchased the specified quantity of vehicles. Hence, GST should be effected. But the AAR has held that it is incentive and not a discount.

CBIC has issued circular number 92/11/2019 dated March 7, 2019 that secondary discount are issued which are not known at the time of supply like reduction in price then GST will not be effected as it does not fall under Section 15(3)(b) of CGST Act. The same analogy was upheld by Advance Ruling in case of Ultratech Cement that the discount passed on due to “rate difference” after the effecting the supply does not fall under Section 15(3)(b) of CGST Act. Hence, GST will not effected.

Further CBIC issued Circular Number 105/24/2019-GST dated June 28, 2019 on this issue and held that dealers will have to pay 18 per cent goods and services tax (GST) on the post-sale discount that their company gives to them if it asks them to do promotional activities or pass on the concessions to the end consumer. However, if discount is given to them without any obligation, he would not be required to pay GST on it. Hence, the analogy is clear that GST will be levied on volume discount as it required additional obligation to purchase particular quantity. Further, it was known to both parties before raising of invoices. Thus, the above decision of Advance Ruling will have more rounds of litigation.

This is solely for educational purpose.

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GST Update on Turnover Discount AAR Karnatak Kwality Mobikes (P) Ltd - 011/2020-21

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