Question ID : 37988

chargeability of GST

1 Manufacturer passes on various discounts namely cash discounts, quantity discounts, volume discounts 2 Similarly company also pass on incentives to dealers in different names . 3 my query is regarding-whether the dealer is liable OR not liable to pay GST on such receipts 4 the dealer (cement industry)has not reported such discounts and incentives in the GST return (As the cement manufacturers have not reported such debit/credit notes in their GST return and not dipicted in the GSTR2A of the dealer) 5 these credit notes do not have any relationship either one to one or to a group of purchase invoices 5 how to report the tax liability issue in the GST audit. Request your guidance and suggestions in this regard

Answer ID : 76295

Any amount received in name of INCENTIVES shall be taxable under GST. Also, the Supplier to you may issue a Credit Note against invoices reversing the GST if such discount has been agreed to on or before supply and you have reversed proportionate GST ITC.

Answer ID : 76304

It appears that these discounts and incentives are not allowed via credit note (issued validly under section 34). Dealer who receives these discounts and incentives may need to consider the following approaches: a. Where this discount goes to reduce Cost of Purchase, no requirement (for dealer) to pay GST again. GST already paid on the original invoice for supply has already reached the Government (from manufacturer). And no need for any actual report (see note on risk below) for the time being in GST returns of dealer b. Where this incentive is (rightly) reported as Other Income, instead of manufacturer issuing a CN, dealer should issue an invoice with 18% GST (HSN 9961 or 9985). And report this as taxable outward supply in the GST returns of dealer and manufacturer (if agreeable) would be eligible to claim credit of this tax. Of course, the above options are not to be whimsically chosen but correctly applied by exercise of professional judgement of a CA who is well versed with revenue recognition bases as per AS/IndAS. Also, please check if the accounting treatment by manufacturer of these discounts and incentives mimics the accounting treatment by dealer. That is, in case (a) above, manufacturer has also reduce his sales by this amount and in case (b) above, manufacturer has treated this as an expenditure and even deducted TDS on commission (or other appropriate section of IT Act). There is a risk of denial of proportionate credit (to be extent original invoice is not fully paid) as per rule 37, but since manufacturer is the one who has opted for this form of CN, dealer may seek to be indemnified by the manufacturer in the event rule 37 is applied by the revenue authorities against the dealer. As of now, some large OEMs have accepted invoice from dealers for all discounts (not meeting the criteria of section 15(3) of CGST Act) and incentives for promotion of brand, etc. But, this practice is not uniform in all industries.

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