Input Tax Credit on Post-sale Discount

Brief Analysis of order passed by Hon’ble Appellate Authority of Advance Ruling in respect of appeal filed by MRF Ltd against the order the AAR on the issue of Input Tax Credit on the consideration not paid by reasons of post-sale discount. Following is the related case plea and its order for Input Tax Credit on Post-sale Discount:

Appellant Plea-

1. The impugned AAR ruling is wholly contrary to the position set out in clarification of CBEC vide Circular No. 122/3/2010-S.T. dated 30.04.2010 in the context of Rule 4(7) of the CENVAT Credit Rules 2004.

2. The legislative intention is to merely ensure that suppliers especially those in MSME sector are paid the commercially agreed price on time, and, deny GST credit if this is not done.

3. Section 9 of the Sale of Goods Act, 1930 makes it clear that the price in a contract of sale of goods is to be fixed or agreed between parties.

4. None of the conditions/ requirements as laid down in Section 16(1) have defaulted in the present case

5. The proviso to Section 16 has to be read in harmony with the main provision of Section 16

6. The intention of the Proviso is to exercise control of genuine supplies which are not backed by payment by the recipient

7. The Proviso read with Rule 37 of the CGST Rules, 2017 apply to cases of failure to pay the value and tax to the supplier and not cases where value paid to the supplier is reduced as a result of mutual settlement

8. The words ‘amount towards the value of supply’ implies only the amount as agreed between the supplier and the recipient which need not be the entire value of supply.

Order

1. Reliance has been placed on the order of Hon’ble Supreme Court of India in case of Dilip Kumar & Company for the interpretation of the statute.

2. The provisions of the second proviso to section 16(2) would come into play only where the buyer/ recipient fails to pay the supplier of goods the amount towards the value of the supply.

3. discussions in the 29th GST Council meeting also establishes the intention of the provision as an anti-evasion measure and a provision to facilitate the prompt payment to suppliers, especially from MSME Sector.

4. Rule 3 of Cenvat Credit Rules, 2004 allows credit of duty “paid” by the manufacturer of the inputs and not duty “payable” by the said manufacturer

5. Circular No. 122/3/2010 dated 30.04.2010 the service receiver is entitled to take credit provided he has also paid the amount of service tax. The invoice would, in fact, stand amended to that extent.

6. A proportionate reversal of the credit is not required to be done by them in case of a post-purchase discount given by the supplier

Rachit Agarwal, Kolkata