GST Introduces Temporary Solution for Verifying Post-Supply Discounts Compliance (Circular 212/6/2024)

Key Takeaways:

1. Suppliers can now use CA/CMA certificates or recipient undertakings as evidence of ITC reversal for post-supply discounts.

2. For discounts with tax amounts up to Rs. 5 lakhs per financial year, recipient undertakings are sufficient.

3. The circular applies retroactively, allowing its use for past periods during audits or investigations.

4. This is a temporary measure until a functionality is available on the common portal for verification.

5. Right Click here and open Official Circular in new tab

Detailed Narrative:

Understanding Post-Supply Discounts and ITC Reversal

Let's break down this circular in simple terms:

The Issue at Hand:

Imagine you're a business that sometimes offers discounts to your customers after you've already made a sale and issued an invoice. In GST terms, you'd issue a "credit note" for this discount. Now, here's the tricky part: to exclude this discount from your taxable value (which means paying less GST), the law says your customer needs to reverse a proportionate amount of input tax credit (ITC) they claimed on your original invoice.

The Problem:

There was no easy way for suppliers or tax officers to verify if the customer actually reversed this ITC. This led to confusion and potential disputes.

The Solution:

The circular introduces a temporary fix until a digital solution is available. Here's how it works:

1. For Most Cases:

- Get a certificate from a Chartered Accountant (CA) or Cost Accountant (CMA).

- This certificate should confirm that your customer has reversed the required ITC.

- It should include details like credit note information, invoice numbers, and how much ITC was reversed .

2. For Smaller Discounts:

- If the total tax amount (CGST+SGST+IGST and cess) on discounts in a financial year is up to Rs.5 lakhs, you can get a simpler undertaking from your customer .

3. Verification:

- CA/CMA certificates will have a Unique Document Identification Number (UDIN) that can be verified online .

4. Use in Tax Proceedings:

- You can use these certificates or undertakings as evidence in tax audits, investigations, or other proceedings .

5. Retroactive Application:

- This solution can also be used for past discounts if you need to prove ITC reversal during any ongoing or future tax proceedings .

Why This Matters:

1. Clarity for Businesses: You now have a clear way to prove that your post-supply discounts are valid and can be excluded from taxable value.

2. Reduced Disputes: This should help reduce conflicts with tax authorities over these discounts.

3. Flexibility: The different options (CA/CMA certificate or customer undertaking) cater to businesses of different sizes and discount practices.

Remember, this is a temporary measure. The government is working on a digital solution that will make this process even easier in the future .

FAQs:

Q1: Do I need to get a CA/CMA certificate for every discount I offer?

A1: Not necessarily. If the total tax amount on discounts in a financial year is up to Rs. 5 lakhs, you can use a simpler undertaking from your customer.

Q2: Can I use this method for discounts I've already given in the past?

A2: Yes, the circular allows for retroactive application. You can use this method to provide evidence for past discounts during any tax proceedings.

Q3: How can I verify the authenticity of a CA/CMA certificate?

A3: Each certificate will have a Unique Document Identification Number (UDIN) that you can verify on the ICAI website for CA certificates or the ICMAI website for CMA certificates.

Q4: What if the tax authorities ask for evidence of ITC reversal during an audit?

A4: You can present the CA/CMA certificates or customer undertakings as admissible evidence of compliance with Section 15(3)(b)(ii) of the CGST Act.

Q5: Is this a permanent solution?

A5: No, this is a temporary measure. The government is working on implementing a functionality on the common portal to verify ITC reversals directly.

Key Precedents:

1. Central Goods and Services Tax Act, 2017 (CGST Act)

2. Section 15(3)(b)(ii) of the CGST Act, 2017

3. Section 34 of the CGST Act, 2017 (related to credit notes)

4. Form GST DRC-03 (for making voluntary payments)

Circular No.-212/6/2024-GST

F.No. CBIC-20001/4/2024-GST

Government of India

Ministry of Finance

(Department of Revenue)

Central Board of Indirect Taxes and Customs

GST Policy Wing

North Block, New Delhi

Dated the 26th June, 2024

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Madam/Sir,

Subject: Mechanism for providing evidence of compliance of conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers -reg.

In cases where the discounts are offered by the suppliers through tax credit notes, after the supply has been effected, the said discount is not to be included in the taxable value only if the condition of clause (b)(ii) of sub-section (3) of section 15 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), for reversal of the input tax credit attributable to the said discount by the recipient, is satisfied. Representations have been received from the trade and the field formations mentioning that there is presently no facility available to the supplier as well as the tax officers on the common portal to verify whether the input tax credit attributable to the said discount has been reversed by the recipient or not. Request has been made to provide a suitable mechanism for enabling the suppliers as well as tax officers to verify fulfilment of the condition of section 15(3)(b)(ii) of the CGST Act regarding proportionate reversal of input tax credit by the recipients in respect of such discounts given by the supplier by issuing tax credit notes after the supply has been effected.

2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues as under:

2.1 Section 15 of the CGST Act provides for value of taxable supply of goods or services or both. Sub-section (3) of the said section provides that the value of supply shall not include discount given by the supplier, subject to certain conditions. As per clause (b) of the said sub-section, any discount which is given after the supply has been effected shall not be included in the value of the supply, only if it satisfies the following conditions:

i. Such discount is established in terms of an agreement entered into at or before the time of such supply;

ii. Such discount must be specifically linked to the relevant invoices

iii. Input Tax Credit attributable to such discount on the basis of document issued by the supplier has been duly reversed by the recipient.

2.2 Accordingly, wherever any discount is offered by the supplier to the recipient, by issuance of a tax credit note as per section 34 of the CGST Act, after the supply has been effected, the said discount can be excluded from the value of taxable supply only if the conditions of clause (b) of sub-section (3) of section 15 of the CGST Act are fulfilled. Such conditions inter alia includes the requirement of reversal of input tax credit by the recipient attributable to the said discount.

2.3 However, there is no system functionality/ facility presently available on the common portal to enable the supplier or the tax officer to verify the compliance of the said condition of proportionate reversal of input tax credit by the recipient.

2.4 In view of the above, till the time a functionality/ facility is made available on the common portal to enable the suppliers as well as the tax officers to verify whether the input tax credit attributable to such discounts offered through tax credit notes has been reversed by the recipient or not, the supplier may procure a certificate from the recipient of supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that the recipient has made the required proportionate reversal of input tax credit at his end in respect of such credit note issued by the supplier.

2.5 The said CA/CMA certificate may include details such as the details of the credit notes, the details of the relevant invoice number against which the said credit note has been issued, the amount of ITC reversal in respect of each of the said credit notes along with the details of the FORM GST DRC-03/ return / any other relevant document through which such reversal of ITC has been made by the recipient.

2.6 Such certificate issued by CA or CMA shall contain UDIN (Unique Document Identification Number). UDIN of the certificate issued by CAs can be verified from ICAI website https://udin.icai.org/search-udin and that issued by CMAs can be verified from ICMAI website https://eicmai.in/udin/VerifyUDIN.aspx.

2.7 In cases, where the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the discount given by the supplier to a recipient through tax credit notes in a Financial Year is not exceeding Rs 5,00,000 (rupees five lakhs only), then instead of CA/CMA certificate, the said supplier may procure an undertaking/ certificate from the said recipient that the said input tax credit attributable to such discount has been reversed by him, along with the details mentioned in Para 2.5 above.

2.8 Such certificates issued by the CA/CMA or the undertakings/ certificates issued by the recipient of supply, as the case may be, shall be treated as a suitable and admissible evidence for the purpose of section 15(3)(b)(ii) of the CGST Act, 2017. The supplier shall produce such certificates/ undertakings before the tax officers, if required, during any proceedings such as scrutiny, audit, investigations, etc. Even for the past period, where ever any such evidence as per section 15(3)(b)(ii) of CGST Act in respect of credit note issued by the supplier for post-sale discounts is required to be produced by him to the tax authorities, the concerned taxpayer may procure and provide such certificates issued by CA/CMA or the undertakings/ certificates issued by the recipients of supply, as the case may be, to the concerned investigating/audit/adjudicating authority as evidence of requisite reversal of input tax credit by his recipients.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.

(Sanjay Mangal)

Principal Commissioner (GST)