Mechanism to compliance of Section 15(3)(b)(ii) of CGST Act, 2017

Section 15(3)(b)(ii) of the CGST Act, 2017 permits excluding post-supply discounts from taxable value under specific conditions: the discount must be stipulated in an agreement prior to supply, tied to invoices, and accompanied by Input Tax Credit (ITC) reversal by the recipient. Since there’s no online system to verify ITC reversal, suppliers need a certificate from a Chartered Accountant (CA) or Cost Accountant (CMA) detailing credit notes, invoice numbers, ITC reversal amounts, and GST return details, all verified with a Unique Document Identification Number (UDIN). For discounts totaling ₹5,00,000 or less annually, an undertaking from the recipient can replace the CA/CMA certificate. These certificates or undertakings serve as proof of compliance during audits or investigations, ensuring adherence to the CGST Act for post-supply discounts.

Here’s a simplified explanation of the mechanism for providing evidence of compliance with Section 15(3)(b)(ii) of the CGST Act, 2017 (Circular No. 212/6/2024_26.06.2024).

Background

• Section 15(3)(b)(ii): This section allows discounts given after the supply has been made to be excluded from the taxable value, but only if certain conditions are met.
• Conditions: The discount must be part of an agreement made before the supply, must be linked to specific invoices, and the recipient must reverse the Input Tax Credit (ITC) related to the discount.

Key Points for Compliance

Discount Agreement:

• The discount must be established through an agreement made before the supply of goods/services.
• The discount should be clearly linked to specific invoices.

Reversal of ITC:

• The recipient of the goods/services must reverse the ITC attributable to the discount.

Verification of ITC Reversal:

• Currently, there is no online system to verify if the recipient has reversed the ITC.
• Interim Solution: The supplier can obtain a certificate from the recipient, issued by a Chartered Accountant (CA) or Cost Accountant (CMA), confirming that the ITC has been reversed.

Details in the CA/CMA Certificate:

• The certificate should include:

1. Details of the credit notes issued.

2. Relevant invoice numbers.

3. Amount of ITC reversal for each credit note.

4. Details of the GST return or document (like FORM GST DRC-03) through which the ITC was reversed.

• The certificate must have a Unique Document Identification Number (UDIN), which can be verified online.

For Small Discounts:

• If the total tax (IGST+CGST+SGST) involved in the discounts given by the supplier to a recipient through credit note in a financial year is ₹5,00,000 or less, instead of a CA/CMA certificate, an undertaking from the recipient confirming ITC reversal is sufficient.

Use of Certificates:

• These certificates or undertakings can be used as evidence during tax audits, investigations, or other proceedings to prove compliance with Section 15(3)(b)(ii).
• This applies even to past periods, where similar evidence may be required.

By following these steps, suppliers can ensure compliance with the CGST Act when claiming post-supply discounts.