53rd GST Council's proposed mechanism on post-sale discounts to benefit stakeholders across various sectors

This move addresses the challenges faced by suppliers in ensuring that recipients reverse Input Tax Credit (ITC) on credit notes, as mandated by law.
Union Finance Minister Nirmala Sitharaman chairs the 53rd GST Council meeting, in New Delhi, Saturday, June 22, 2024.
Union Finance Minister Nirmala Sitharaman chairs the 53rd GST Council meeting, in New Delhi, Saturday, June 22, 2024.Photo | PTI

NEW DELHI: Stakeholders across sectors, including FMCG, infrastructure, electricals, electronics, furniture, and jewellery, are expected to benefit from the implementation of a clarification mechanism regarding post-sale discounts, proposed by the 53rd GST Council meeting, according to experts.

The GST Council has recommended a mechanism for suppliers to demonstrate compliance with Section 15(3)(b)(ii) of the CGST Act, 2017, related to post-sale discounts.

This move addresses the challenges faced by suppliers in ensuring that recipients reverse Input Tax Credit (ITC) on credit notes, as mandated by law. The proposed mechanism, expected to be facilitated through the GSTN, will enable suppliers to secure confirmation from recipients regarding the reversal of ITC on credit note amounts.

According to experts, field officers raised numerous demands on the issuers of the credit note, despite suppliers being unable to legally verify if recipients had indeed reversed the ITC.

"Since discounts are a common business practice in modern trade, almost all suppliers at all levels in the supply chain were affected by these anomalies in the GST law. Whether manufacturers, distributors, wholesalers, or retailers, this issue impacted almost all taxpayers," said Vivek Jalan, Partner, Tax Connect Advisory Services LLP, a multidisciplinary PAN India Tax Consulting Firm.

"With this clarification, we expect that thousands of demands across all sectors, including FMCG, infrastructure, electricals, electronics, furniture, jewellery, and others, will be relieved," Jalan added.

When a supplier provides a post-sale discount and raises a GST Credit Note to reverse its GST Output Tax liability, as per Section 15(3)(b)(ii) of the CGST Act, they are duty-bound to ensure that the recipient of the credit note reverses its ITC.

In other words, the supplier and issuer of the post-sale discount credit can reduce their output GST only if the customer and recipient of the credit note reverse their ITC.

Jalan emphasized the need to address demands raised over the past seven years. The Trade and Industry sector expects a facility to be provided for past periods to resolve any existing litigation on this matter, he added.

Meanwhile, Chetan Daga, Founder of AdvantEdge Consulting, said, "It is likely that additional fields may be introduced in the GST Returns to capture this information specifically. The exact mechanism shall be known in due course once the CBIC gives effect to the Council's recommendations."

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