Mechanism to compliance of Section 15(3)(b)(ii) of CGST Act, 2017

Here's a simplified explanation of the mechanism for providing evidence of compliance with Section 15(3)(b)(ii) of the CGST Act, 2017 (Circular No.212/6/2024_26.06.2024)

Background

• Section 15(3)(b)(ii): This section allows discounts given after the supply has been made to be excluded from the taxable value, but only if certain conditions are met.
• Conditions: The discount must be part of an agreement made before the supply, must be linked to specific invoices, and the recipient must reverse the Input Tax Credit (ITC) related to the discount.

Key Points for Compliance

Discount Agreement

• The discount must be established through an agreement made before the supply of goods/services.
• The discount should be clearly linked to specific invoices.

Reversal of ITC

• The recipient of the goods/services must reverse the ITC attributable to the discount.

Verification of ITC Reversal

• Currently, there is no online system to verify if the recipient has reversed the ITC.
• Interim Solution:The supplier can obtain a certificate from the recipient, issued by a Chartered Accountant (CA) or Cost Accountant (CMA), confirming that the ITC has been reversed.

Details in the CA/CMA Certificate

The certificate should include:

1. Details of the credit notes issued.

2. Relevant invoice numbers.

3. Amount of ITC reversal for each credit note.

4. Details of the GST return or document (like FORM GST DRC-03) through which the ITC was reversed.

The certificate must have a Unique Document Identification Number (UDIN), which can be verified online.

For Small Discounts

If the total tax (IGST+CGST+SGST) involved in the discounts given by the supplier to a recipient through credit note in a financial year is ₹5,00,000 or less, instead of a CA/CMA certificate, an undertaking from the recipient confirming ITC reversal is sufficient.

Use of Certificates

• These certificates or undertakings can be used as evidence during tax audits, investigations, or other proceedings to prove compliance with Section 15(3)(b)(ii).
• This applies even to past periods, where similar evidence may be required.

By following these steps, suppliers can ensure compliance with the CGST Act when claiming post-supply discounts.