News Update

37 th Meeting of the GST Council - It continues to rain reliefs! - Part-III


OCTOBER 01, 2019

By Shailesh Sheth, Advocate


RESCINDING Circular on Post-sales discount – Disaster averted…!

Council's recommendations:

THE Council has recommended the rescinding of Circular No. 105/24/2019-GST dated 28.06.2019, ab initio which was issued in respect of post-sales discounts.


It is, indeed ironical that the controversies surrounding the 'tax treatment of post-sales or secondary discount' simply refuse to die! One would have thought that the principles of law on this issue having been fairly settled by a catena of judicial pronouncements by the Apex Court and other judicial fora rendered in the pre-GST indirect tax regime, the same would not pose a major challenge for the Revenue and the taxpayers under the GST regime. The principles of law, otherwise settled,would require reconsideration only in those cases where the statutory provisions of the CGST Act mark a clear departure from the legal position as existing in the pre-GST era.

Alas! This was not to be! The 'almighty Board' decided to 'clarify' various issues or doubts surrounding the 'tax treatment of secondary or post-sales discounts or sales promotion schemes' through issue of the Circulars and in the process, muddied the hitherto clean waters!

The Circularsin questionare:

1. Circular No. 92/11/2019-GST dated March 7, 2019 captioned "Sales Promotion Schemes under GST – clarifications on various doubts".

2. Circular No. 105/24/2019-GST captioned "Clarifications on various doubts related to treatment of secondary or post-sales discounts under GST."

While the Circular dated March 3, 2019 didn't create much flutter amongst the taxpayers, the Circular dated June 28, 2019 virtually created a panic amongst them! The taxpayers were aghast in particular, at the clarifications at para (3) and (4) of the latter Circular that sought to treat the 'post-sales incentive' and 'special/additional discount' as 'consideration' and levy GST on it!

Needless to say, there was an all-round protest against these mischievous and obnoxious clarifications! Much ink has already been spilled on the analysis of those clarifications, their justifiability and validity and stringent criticism thereof. It is, therefore, not proposed to analyse these clarifications here.

Mercifully, the Council has realized the extensive damage these "clarifications" would cause in the long run and has recommended the rescinding of the Circular No. 105/24/2019-GST abinitio . 'Ab initio' is a Latin term that means ' from the first act; from the beginning or from inception'. Thus, the captioned Circular will be treated as if it was never issued or valid to begin with. Naturally, the taxpayers will heave a big sigh of relief at this very bold, timely and pragmatic decision of the Council, but for which the floodgates of litigation would have opened up in future as a consequence of these horrendous clarifications!

While such damage has been averted by the Council, a few questions remain: What was the (un)sound basis (if there ever was one)– on which these clarifications were issued ?Weren't the illegality, impropriety and self-serving nature of these clarifications too apparent to make the Board push the 'pause' button and reflect before the same were issued? Though the Circular is proposed to be rescinded, who shall be responsible for the criminal waste of time, money and energy of the taxpayers (though tax professionals/advisors may be laughing their way to the bank!),in understanding and analyzing the Circular and going back to the drawing board, restructuring their sales-promotion policies?Sadly, accountability is a non-existent element in the tax administration and therefore, no one will be taken to task for causing such monumental national chaos.

By now, it must have been clear to the netizens that the GST laws suffer from 'excessive delegation' and in coming days, this aspect may take centre-stage and become the subject matter of many legal challenges. It is, therefore, extremely necessary that before any such clarifications are issued, serious deliberations take place over the necessity and inevitability of the issue of clarifications on any issue, the justifiability and basis of the views proposed to be taken by the Board and the likely impact and implications of the clarifications. Since the trade and industry will ultimately bear the brunt of any such clarifications, their involvement in the entire exercise must be ensured in some manner.

"Bureaucracy defends the status quo long past the time when the quo has lost its

[Laurence J. Peter)

g. Filing of a refund application where a NIL refund application has earlier been filed –'Resurrecting the corpse….!'

Council's recommendation:

The Council has recommended the issue of a Circular so as to clarify the following issue and to ensure uniformity in application in law across all jurisdictions:

-  Eligibility of the taxpayer to file a refund application in FORM GST RFD-OIA for a period and category under which Nil refund application has already been filed.


A taxpayer may claim refund in terms of the relevant provisions of the CGST Act and/or IGST Act on any of the following counts viz:

i. refund of unutilized ITC on account of zero rated supply under Bond/LUT;

ii. refund of accumulated ITC on account of the inverted tax structure.

iii. refund of tax paid on 'zero rated supply'

iv. refund of tax paid on 'deemed export' supplies.

The claim is filed on the common portal and the particular category under which claim is being made is selected by the applicant. There is also a provision for selecting a "NIL' option for the refund under a particular category for the selected period.

It may sometimes happen that the applicant-taxpayer may inadvertently select 'NIL' refund option in spite of there being a genuine refund claim during the relevant tax period/s under a particular category. However, the system does not allow the subsequent filing of refund claim under the same category for that particular tax period. This virtually closes the door for the taxpayer so far as his claim for refund is concerned. It is heartening to see that the Council has taken due note of this genuine hardship being faced by the taxpayers and has recommended the issue of Circular by the Board clarifying this issue and also to ensure uniformity in the implementation of the provisions of the law across all jurisdictions. It is obvious that the clarifications will be issued by the Board under S.168(1) of the CGST Act pursuant to the recommendations by the Council.

It remains to be seen whether the Board will provide for the filing and grant of refund claim with any strings attached or not. For instance, a taxpayer may have inadvertently filed Nil refund claim for a certain period under a particular category. The taxpayer may have thereafter filed the subsequent refund claims under the same category for the subsequent period. It is hoped that no restriction will be placed on filing of refund claim for the earlier period which was wrongly filed in such cases. The claim can be allowed to be filed under the "Any other " category if required. There is also a possibility of variation in refund amounts applying the relevant parameters at the time of filing of 'NIL' refund claim by the taxpayer and at the time of subsequent filing of claim under 'Any other' category. In such circumstances, if need be, the least of the two amounts may be sanctioned to the taxpayer.

The recommendation of the Council could not have come a day sooner! It is understood that a large number of taxpayers have inadvertently filed 'NIL' refund claims under a particular category for a certain period even though refund is due for that period. The recommendation of the Council has brought a ray of hope for such taxpayers who have otherwise washed their hands off their refund claims as 'dead claims'!

"Always overpay your taxes. That way you'll get a refund."

[Meyer Lansky]

[The author is founder M/s. SPS Legal and the views expressed are strictly personal.]

See Part I & II

The series stands concluded - Editor

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