Purchasing dealer need not reverse tax credit unless selling dealer issues credit note for post sales discount and revises his tax liability

CA Bimal Jain

Facts:

Challenger Computers Ltd. (the Appellant) is engaged in trading of computer hardware and software. During audit for the period of 2008-09, the VATO noticed that the Appellant had received incentives and discounts from the selling dealer subsequent to sales of the goods.

The Department took a view that in terms of Section 10(1) read with Section 51(a) of the DVAT Act, it was incumbent on the purchasing dealer to claim Input tax credit (ITC) only to the proportionate extent after accounting for the discount received from the selling dealer. Accordingly, the Appellant was asked for the reversal of ITC claimed on discounts and incentives received from the selling dealer.

Held:

After considering the combined reading of Section 10, Section 51, Section 38 and Section 40A of the DVAT Act, the Hon’ble High Court of Delhi held that in terms of the Section 51(a) of the DVAT Act, the selling dealer will issue the credit note to the buying dealer where the sales are subsequently reduced. The buying dealer will accordingly adjust his ITC in terms of Section 10 of the DVAT Act. Thus, without issuance of such credit notes, the buying dealer should not be insisted to adjust the ITC in terms of Section 10 of the DVAT Act and the tax reflected in the tax invoice would continue to stand.

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