MARCH 20, 2019

By R K Singh, Member, CESTAT (Retd.)

REFERENCE is invited to the captioned circular in terms of which CBIC has issued clarification on various doubts related to treatment of sales promotion schemes under GST. With regard to secondary discounts, the clarification is as under:

D. Secondary Discounts

i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet.

ii. The provisions of sub-section (1) of section 34 of the said Act provides as under:

"Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed."

iii. Representations have been received from the trade and industry that whether credit notes(s) under sub-section (1) of section 34 of the said Act can be issued in such cases even if the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. It is hereby clarified that financial/commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties.

iv. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied.

v. In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied.

Given the fact that in the given context the expression "shall not include" can be regarded as equivalent to "shall exclude", para D(v) reproduced above in effect states that 'the value of supply shall exclude the secondary discounts except in cases where the provisions contained in s. 15(3)(b) of CGST Act 2017 are satisfied. This is exactly opposite of the what is stated in para D(iv) which in effect states that such secondary discounts shall not be excluded while determining the value of supply when they do not satisfy the provisions of s. 15(3)(b) ibid. In other words, the contents of paras D(iv) and D(v) are mutually contradictory.

2. A clarification of the said clarification is required.

(The views expressed are strictly personal.)