In re Vedmutha Electricals India Private Limited (GST AAR Andhra Pradesh)
The recent ruling by the AAR Andhra Pradesh in the case of Vedmutha Electricals India Pvt. Ltd. clarifies the eligibility of businesses to retain Input Tax Credit (ITC) even when a financial credit note is issued for a post sale discount. AAR ruled that assessee is eligible to take full credit of GST charged in invoice issued by the supplier even though later commercial/financial credit note has been issued.
Facts:
M/s. Vedmutha Electricals India Private Limited (“the Applicant”) are engaged in the business of supply various electronic items.
The Applicant purchased various electronic items from M/s. Gold Medal Electricals Private Limited (“the Supplier”). The supplier issued tax invoice as per Rule 46 of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”), and charge GST on taxable as per Section 15 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
The supplier provided number of incentives in the form of “discounts,” including Turnover Discounts, Quantity Discounts, Cash Discounts, Additional Scheme Discounts, 3 Months Regular Scheme Discounts, etc., year by year from the time of registration to the present. All of the aforementioned discounts are post sale discounts. The supplier raised financial/commercial credit notes for the above-mentioned discounts. Both the Applicant and the supplier acknowledged the financial/commercial credit notes in their income tax returns. Furthermore, because Section 15 of the CGST Act does not allow exclusion of “Post Supply Discount” from transaction value, the supplier does not lower its output tax liability with regard to the aforementioned financial/commercial credit notes.
The Applicant further asserts that in case of post supply discounts, the discount is specified in an agreement made at or before the time of the supply and the Input Tax Credit (“ITC”) attributable to the discount is not to be reversed by the Applicant.
Issues:
Whether the Applicant is liable to reverse the ITC proportionately to the extent of financial/ commercial credit note issued by the supplier?
Held:
The AAR, Andhra Pradesh, in Advance Ruling no. 05/AP/GST/2023 held as under:
