GST Suppliers Offering Post-Sale Discounts Must Have Client Undertaking, Says CBIC
There is currently no mechanism to track whether the ITC on such discounts has been reversed or not.
Suppliers who provide post-sale discounts via credit notes under GST must ensure that the customer provides a declaration or a Chartered Accountant certificate confirming that the input tax credit claimed on the discounted amount has been reversed, the Central Board of Indirect Taxes and Customs said.
There is currently no mechanism to track whether the ITC on such discounts has been reversed or not.
Until a feature is accessible on the shared platform for suppliers and tax officers to confirm the reversal, suppliers can request a certificate from the recipient of the goods, issued by the Chartered Accountant or the Cost Accountant, certifying that the recipient has made the required proportionate reversal of ITC at his end in respect of such credit note issued by the supplier.
In cases where the amount of tax (CGST+SGST +IGST and including compensation cess, if any) involved in the discount given by the supplier to a recipient through tax credit notes in a financial year does not exceed Rs 5 lakh, then instead of CA/CMA certificate, then the supplier will have to get an undertaking from the said recipient.
Moore Singhi Group Executive Director for indirect taxes, Rajat Mohan, said the circular has a retrospective effect, impacting all demands on this issue since 2017. Taxpayers engaged in litigation on this point can leverage this clarification for relief.
Mohan said that this will greatly help the sector going forward, by providing clarity on the credit note issuance process. The circular requires CA/CMA certifications or self-certifications for minor transactions, adding to the paperwork and requiring accounting system adjustments.
"This circular demands meticulous compliance but promises long-term benefits in terms of predictable and streamlined GST operations," Mohan said.
EY Tax Partner, Saurabh Agarwal, said these documents, with a unique ID number, serve as proof for audits and ensure consistent application of GST rules on post-sale discounts. This would help in resolving the disputes between the tax department and the businesses.
In a separate circular, Central Board of Indirect Taxes and Customs clarified that ITC is available to insurance companies in respect of motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement.
"In cases where the garage issues two separate invoices in respect of the repair services, one to the insurance company in respect of approved claim cost and second to the customer for the amount of repair service in excess of the approved claim cost, input tax credit may be available to the insurance company on the said invoice issued to the insurance company, subject to reimbursement of said amount by insurance company to the customer," it said.
However, if the invoice for the full amount for repair services is issued to the insurance company while the insurance company makes reimbursement to the insured only for the approved claim cost, then the input tax credit may be available to the insurance company only to the extent of reimbursement of the approved claim cost to the insured, and not on the full invoice value.
(With inputs from PTI.)
