As per Section 15(3) of CGST Act: –
The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
Explanation of the Section 15(3):
Amount of discount should be reduced from value of supply if –
(a) Discount is allowed at or before time of supply and amount of discount is mentioned on Invoice and;
(b) Discount is allowed after supply has been effected if –
(i) Discount is given in terms of an agreement that existed at the time of supply and every invoice raised earlier discounted and;
(ii) Recipient (Purchaser) has reversed the Input tax credit availed which is attributable to discount (Generally, such discounts are passed on by the supplier through credit notes and Purchaser, by considering those credit notes in GSTR-3B, reverse the ITC).
Examples of Discounts under section 15(3)(b):
I. Buy more Save More – E.g.- Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10000/- etc.
II. Periodic/Year ending Discount – E.g. – Get additional discount of 1% if you purchase 10000 pieces in a year, get additional discount of 2% if you purchase 15000 pieces in a year etc.
As per the CBIC Circular No. 92/11/2019-GST
- It is clarified that financial / commercial credit notes can be issued by the supplier even if the conditions mentioned in clause (b) of section 15(3) of the said Act are not satisfied (Credit notes can be issued as a commercial transaction between the two contracting parties).
- As per the para 2D(v) Value of supply shall not be reduced by the discount which is passed on by the seller by way of financial/commercial credit notes.
- Secondary Discounts which are given to the Purchaser at the time of payment of invoice, shall not be excluded while determining value of supply as such discount is not known at the time of supply.
- Since GST is not charged on these commercial/financial credit notes, these type of discounts may be considered as NON GST Supply.
Example: X purchases goods worth Rs. 1,00,000/- plus 18,000 GST from Y(Seller) during the financial year 2021-22. And X has made the payment to Y Rs. 1,18,000/-. Afterwards, Y(Seller) has filed his GSTR-1 and X(Buyer) gets the ITC of Rs. 18,000/-.
Now in Financial year 2022-23, Y(Seller) gives volume discount (which does not fulfil the condition of section 15(3)(b)) to X(Buyer) in respect of purchases made during the financial year 2021-22.
To Pass-on this type of discount which does not fulfil the conditions of section 15(3)(b) Y(seller) may issue the financial / commercial credit notes to the X(buyer) and not to charge the GST on such credit notes as it does not reduce the value of supply.
Also, X (purchaser) need not to reverse the ITC on such financial/commercial credit notes.
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