GST liability on credit notes received from supplier for discount given on products pre charging GST

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This discussion clarifies whether distributors are liable to pay GST on credit notes received from suppliers for discounts offered on products. The consensus, supported by recent rulings and circulars, is that GST is generally not applicable on such credit notes. This is because these are considered secondary discounts, not declared at the time of supply and not subject to a specific supply. Therefore, distributors do not need to pay GST on these amounts, provided certain conditions regarding prior agreements and GST adjustments are met.

Anil Bhawasinka

Anil Bhawasinka (Querist)

27 October 2024 It is common practice that FMCG operates scheme/discount on products through its distributors to retailers. This discount is given by making deduction from the amount of product and then after GST is charged in the bill . These discounts are not declared at the time of supply nor is subject to a particular supply, supplier does not reverse it's tax liability for this discount and issue distributors a credit note for the amount passed to retailers through distributors invoice. Distributors debit this amount to supplier and show it at credit of p&l Ac. Is the distributor liable to pay GST on this credit notes. If yes ,under which section and with what rate

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

28 October 2024 There is no need to charge GST on the commercial debit note issued by the company in respect of secondary discount received from their supplier through commercial credit note issued by them. In the present case, the value of discount is not known at the time of supply of goods. Hence known as secondary discount.
Refer: . Circular No. 92/11/2019-GST dated 07.03.2019.

No ITC is reversal is required. The same has been held by the Tamilnadu Appellate Authority for Advance Ruling (AAAR) in the case of MRF Limited.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

28 October 2024 Authority for Advance Ruling, Madhya Pradesh on the application filed by Rajesh Kumar Gupta proprietor of M/s Mahaveer Prasad Mohanlal, Gandhi Ganj, Jabalpur (M.P.) [Case No. 07/2021 order dated 06.01.2022] has held that:
The applicant can avail the Input Tax Credit of the full GST charged on the invoice of the supply and no proportionate reversal of ITC is required in respect of commercial credit note issued by the supplier for cash discount for early payment of supply invoice (bills) and Incentive/scheme provided without adjustment of GST, if the said discount is not covered under Section 15(3)(b) of CGST Act, 2017 and the said discount is not in terms of prior agreement. This is subject to the conditions that the GST paid for the said goods/service is not reversed or reimbursed / re-credited by the supplier to the applicant in any manner.
Since the amount received in the form of credit note is actually a discount and not a supply by the applicant to the supplier, no GST is leviable on receiver on cash discount/incentive/scheme offered by the supplier to applicant through credit note against supply without adjustment of GST.
The ruling is valid subject to the provisions under section 103(2) until and unless declared void under section 104(1) of the GST Act.

Anil Bhawasinka

Anil Bhawasinka (Querist)

28 October 2024 Thanks to you sir for your opinion.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

28 October 2024 You are welcome...

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