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GST update 09.01.2017 Valuation provisions

Valuation provisions

DAILY DOSE OF GST UPDATE BY CA PRADEEP JAIN

Valuation Provisions:

As the GST law has been revised, it is pertinent to note down what all issues still remain un-tackled or untouched. Also certain provisions are there which are yet again drafted in such a way that they would attract litigation. Here we are discussing two such provisions:
Seeing the valuation provisions as prescribed in section 15, the subsection 3 of section 15 lays down the conditions to be adhered in relation to exclusion of discounts. The sections reads as follows:
(3) The value of the supply shall not include any discount that is given:
(a) before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, provided that:
(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 has been reversed by the recipient of the supply as is attributable to the discount on the basis of document issued by the supplier.
 
The wording of the sections seems a little bit difficult to understand and it should be simplified. Providing too many conditions for exclusion of discounts would only prove to be difficult to follow and fulfill. This would give wide discretion to the officers and hence more litigation in times to come especially for FMCG and the like sectors.
 
For the pre-shipment discount, this section clearly provides that no discount shall be allowed unless the same is given either before or at the time of supply. Now, how a discount before the supply of goods or services? Secondly, if a price is negotiated between supplier and buyer then department will always compare with other buyer price and will intend to challenge such price that these are due discount given to buyer and it is clearly not mentioned on invoice. This is due to the second condition that it should be recorded in the invoice issued for such supply. Hence, every price negotiated should mention the standard price and then discount given to buyer. Otherwise, it will always be liable to be challenged by the department.
 
Secondly, the discounts are given on various counts viz. volume, area, payment terms, scale of business likely to come from buyer in future, policy adopted by competitor etc. These are business consideration and let the business decide them and we should not come in between the same.
Now, what is meaning of recorded in the invoice. Earlier, it was given in old GST law that it should be mentioned in invoice. The meaning of the same was taken that we should mention all the terms and conditions on invoice itself. But now meaning of words "recorded in invoice" is not clear. This might mean that it should be deducted from sale value while raising bill itself. But discount normally are given on volume in a particular month or on payment in a particular period. Now, such type of discounts cannot be deducted beforehand. Such type of discounts were allowed under Central Excise law on notional basis. Such type of discounts will fall under second category. Hence, you have pay GST firstly and then claim discounts afterwards.
 
However the discounts related to post sale turnovers are also not allowed. It will be allowed only if there is agreement to that effect beforehand. Normally, big companies enters into agreement and announces their policies. But the small traders does not formally enters into such agreements. They simply gives the discounts. Such discounts will always be under challenge.
 
The above conditions have to be coupled with the condition that the recipient of the discount has reduced his claim of input tax credit to such extent as the discount has been passed. It will be a complex procedure to determine if the receiver of the discount has reduced his claim of input tax also. Whether there is mechanism with the poor supplier to know that the buyer has reduced the input tax credit.
 
Thus these provisions need to be relaxed.
 
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