Whether ITC to be reversed on Financial/Commercial Credit Notes ?
Many Notices and Demand Orders have been issued, demanding the reversal of Input Tax Credit (ITC) due to the Financial/Commercial Credit Notes.
Here is the reply :
1. You claim ITC as per the provisions of Section 16 read with Rule 37.
2. Most of the time, these Financial Credit Notes are “Volume Discount”.
3. Sec. 15(3) deals with the value of the supply shall not include any discount which is given
-> Discounts Before or At Time of Supply
-> Post-Supply Discounts
4. Since the Recipient has claimed the ITC on the basis of earlier issued invoice and all taxes has been paid by the supplier. Now, the supplier has not reduced it’s tax liability due to these financial credit notes, and therefore, the recipient is also not required to reverse the ITC.
5. Part D of Circular No. 92/11/2019-GST dated 07-Mar-2019 clarifies that secondary discount that are not known at the time of supply shall not be excluded while determining value of supply as per Sec. 15(3)(b).
6. Karnataka AAR in re, Kwality Mobikes Pvt. Ltd. (24-Sep-2019)
(a) Volume discount received on purchases in form of credit note without any adjustment of GST: No GST
(b) Volume Discount received on Retail (on sales) in form of credit note without any adjustment of GST: Not liable for GST
(c) Amount received in the form of a credit note that the assessee discounts but does not supply to an authorized supplier; the assessee is not required to issue a tax invoice for the transaction.
7. Tamil Nadu AAAR in, MRF Limited (24-Jun-2019)
Assessee can avail ITC of full GST charged on undiscounted supply invoice of goods/services by their suppliers – Proportionate reversal of credit not required to be done by them in case of a post-purchase discount given by supplier to them.
8. Madhya Pradesh AAR in re, Rajesh Kumar Gupta (06-Jan-2022)
Credit notes issued to trader for early payment cash discount and target incentive schemes without GST adjustment are not liable to GST as the trader does not provide any service.