Volume discount received on purchases and sales through credit note without any adjustment of GST is not liable for GST: AAR-Karnataka

The Hon’ble Authority for Advance Ruling in Karnataka, in the case of M/s Kwality Mobikes (P) Ltd. in Advance Ruling No. KAR ADRG 76/2018 decided on September 24, 2019, has held that volume discount received on purchases and Retail (on sales) through credit note without any adjustment of GST is not liable for GST. Further, since amount received in the form of credit note is actually a discount and not a supply by Applicant to Authorised supplier, the Applicant need not issue tax invoice for this transaction.

Facts:

M/s KwalityMobikes (P) Ltd. (“the Applicant”) is in the business of supplying motor vehicles. He is the authorised dealer for Harley-Davidson India (hereinafter called “authorised supplier”) who manufactures high end two-wheeler motorcycles. The Applicant in its regular course of business, purchases the vehicles from the authorised supplier wherein it charges 28 Percent GST plus applicable Cess.

The Authorised supplier allows credit period of 30 days and also fixes sales targets to the Applicant. Besides, on purchase of vehicles which are over and above the limit fixed on regular purchases, the Applicant is also eligible for volume discount, which is paid on monetary terms.

Hence, the Applicant company is eligible for volume discount on retail i.e., sales commission and on purchases over and above the target is eligible for Regular Volume Discount (i.e. on purchases). The Authorised supplier issues credit note and this credit note is not affecting the purchase price or sale price and hence has no effect on GST collected in the invoices.

Advance Ruling saught for:

  • Whether the volume discount received on purchases is liable for GST? If yes, under which HSN/SAC?
  • Whether the volume discount received on retail ( on sales) is liable for GST? If yes, under which HSN/SAC?
  • Whether the Applicant Company has to issue taxable invoice to this effect?

Findings and Observation:

  • The Authorised supplier is issuing a tax invoice on the supply of goods to the applicant and the applicant is taking credit of the input tax charged in the invoice. The Applicant Whenmakes more purchases is eligible for the volume discount on purchases and a credit note is issued by the Authorised supplier and no adjustment of price is made in respect of the goods already sold nor any adjustment of GST is made in the credit note. The applicant is also not claiming any reduction in input taxcredit already claimed by him as it does not affect the price of the goods sold. Hence, the amount received by the Applicant is in the form of an incentive provided by the authorised supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same.
  • Further, the Applicant when sells more than his target is eligible for the incentive which is provided by the Authorised supplier in the form of a credit note without affecting the sale price of the goods purchased or sold. Even this is in the form of incentive and no adjustment of price nor tax is done either by the Applicant or the Authorised supplier. Hence, the amount received by the Applicant is in the form of an incentive provided by the Authorised supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same.
  • Further the applicant is not providing any service to the authorised supplier and is only receiving the incentive. Indirectly, it has an effect on the sale price of the goods purchased by the applicant from the authorised supplier and is actually in the form of discount. Since the credit note is issued as a post-sale event, the same is not covered under the Section 15(3)(a) of the CGST Act, 2017. Further, the Applicant has not reversed the input tax credit attributable to the discount received in the form of credit note from the Authorised supplier, the same cannot be covered under Section 15(3)(b) of the CGST Act. Hence, The credit note issued by the supplier in the pertinent case does not have any effect on the value of supply and hence is only a financial document for account adjustment for the incentive provided. Hence, there is no effect on the GST.

Ruling:

The Hon’ble AAR, Karnataka held as follows:

  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 onRetail (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 Applicant to Authorised supplier, the Applicant need not issue tax invoice for this transaction.

Citation : GW-977-2019-AAR-KT

Corum : 1. Sri Harish Dharnia, Member, Central Tax and 2. Dr. Ravi Prasad M.P. Member, State Tax

Our Comments:

Financial/ Commercial Credit Note without charging GST is a viable option for passing on benefits of post-supply incentives/ discounts.

The CBIC,in its Circular No. 92/11/2019-GST dated March 7, 2019, has clarified that a Financial/ Commercial Credit Note can be issued by the supplier even if the conditions mentioned in Section 15(3)(b) of the CGST Act are not satisfied. However, such Credit Notes shall not have any impact on value of supply and corresponding input tax credit.

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