The Delhi Value Added Tax Department has issued Circular No. 11 of 2014-15 dated September 8, 2014 (the Circular) to clarify reversal of Input Tax Credit in respect of Credit Note (CN) or Debit Note (DN) issued in relation to discounts.

In terms of Section 10(1) of the DVAT Act, 2004 (the DVAT Act) where a purchaser of goods has been issued CN or DN, he is required to adjust his ITC in the tax period when such CN or DN is issued. However, such adjustment would be possible only in the context of sales and purchases made in Delhi.

Instances where CN can be issued by the Selling Dealer

The Circular has enumerated the following instances where CN can be issued by the selling dealer:

(i)      Trade Discount,

  • Discounts given at the time of sale
  • Post sale discounts

(ii)     Relating to goods returned or rejected by the purchaser.

(iii) Due to variation in rate or quantity in individual sale invoice;

(iv) Consideration for other facilities offered to the purchaser, such as, rent for window display, sign-boards, lease rental of premises, other establishment expenses, etc.

(v) Reimbursement of expenses incurred by purchaser on behalf of seller.

(vi) Cash Discount.

The seller may adjust the ITC by revising the return or by making the adjustment in current tax period returns in terms of Section 8 of the DVAT Act. The reduction in ITC by the buyer is independent of reduction in output tax liability by the seller.

Issuance of CN against cash discount

The CN issued in respect of cash discount, reimbursement of expenses and consideration for other facilities offered to purchaser wouldn’t be adjustable against the output tax liability.

Since the above instances doesn’t affect the output tax liability, they are not required to be reported in Annexure 2C and Annexure 2D of the Vat Return.

Adjustment of ITC by the buying Dealer

ITC would be adjusted by the buying dealer in the circumstances where the CN or DN issued to him is in respect of trade discount, goods returned or rejected by the dealer and due to rate or quantity variation.

(Bimal Jain, FCFCS, LLB, B.Com (Hons), Mobile: +91 981060456A, 3, Email: bimaljain@hotmail.com)

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