Mechanism for providing evidence of compliance with conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers (Post Sale Discount)

Circular No.: 212/6/2024-GST
Date: 26th June, 2024
Subject: Mechanism for providing evidence of compliance with conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers

Key Points and Clarifications:

Background:

This circular addresses the mechanism for verifying the compliance with the conditions specified in Section 15(3)(b)(ii) of the Central Goods and Services Tax (CGST) Act, 2017, regarding the reversal of input tax credit (ITC) by recipients when suppliers offer post-supply discounts through tax credit notes. The aim is to ensure uniformity and clarity in the implementation of these provisions across all field formations.

Key Provisions Involved:

  • Section 15(3)(b)(ii) of the CGST Act, 2017: Specifies that the value of supply shall not include any discount given after the supply has been effected if the recipient reverses the ITC attributable to the discount.
  • Section 168(1) of the CGST Act, 2017: Empowers the Board to issue instructions and directions to GST officers to ensure uniformity in the implementation of the Act.

Section 15(3)(b)(ii) Details:

  • Discounts given after the supply has been effected can be excluded from the value of supply if:
    1. The discount is established in terms of an agreement entered into at or before the time of such supply.
    2. It is linked to relevant invoices.
    3. The recipient has reversed the ITC attributable to the discount.

Issues and Clarifications:

Issue 1: Mechanism for Verifying ITC Reversal on Discounts Offered through Tax Credit Notes

  • Concern: There is no facility available on the common portal for suppliers or tax officers to verify whether the ITC attributable to the discount has been reversed by the recipient.
  • Clarification: The supplier must procure a certificate from a Chartered Accountant (CA) or a Cost Accountant (CMA) certifying that the recipient has reversed the required ITC. In cases where the tax involved in the discount does not exceed Rs 5,00,000 in a financial year, an undertaking from the recipient is sufficient.

Key Points from Circular:

  1. Requirement for CA/CMA Certificate:
    • Suppliers must obtain a certificate from the recipient’s CA/CMA certifying the reversal of ITC attributable to the discount.
    • The certificate should include details such as the credit note details, relevant invoice numbers, the amount of ITC reversal, and the documents through which the reversal has been made (e.g., FORM GST DRC-03).
  2. UDIN Verification:
    • The CA/CMA certificate should contain a Unique Document Identification Number (UDIN).
    • The UDIN can be verified on the ICAI (Institute of Chartered Accountants of India) or ICMAI (Institute of Cost Accountants of India) websites.
  3. Alternative for Small Discounts:
    • For discounts where the tax involved does not exceed Rs 5,00,000 in a financial year, the supplier can obtain an undertaking or certificate from the recipient instead of a CA/CMA certificate.
    • The undertaking should confirm the ITC reversal and include the same details required for the CA/CMA certificate.
  4. Evidence for Tax Officers:
    • The CA/CMA certificates or recipient undertakings are considered suitable evidence for the supplier to substantiate the ITC reversal during any scrutiny, audit, or investigation by tax officers.
    • This applies even for past periods where such evidence is required.
  5. Uniformity in Implementation:
    • The circular ensures uniformity in the application of these provisions across all field formations, providing a clear mechanism for suppliers to verify compliance with Section 15(3)(b)(ii) of the CGST Act.

Tabular Summary

IssueClarification
Mechanism for verifying ITC reversal on discounts offered through tax credit notesSupplier to procure CA/CMA certificate from recipient or undertaking from recipient for ITC reversal. CA/CMA certificate to be verified using UDIN.