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Issue of Discount & Delay in Payment of Consideration
Facts
Vlook Smart Ltd. (hereinafter referred as “company”) is a leading retail chain of India. It has retail stores in multiple States with its corporate office located in Mumbai, Maharashtra. The company has GST registrations across all States from where it operates its retail stores.
Question-1: V-Lool Smart Ltd. Supplied goods worth Rs.100 crores through its retail store in Jaipur, Rajasthan and offered a cash discount of Rs. 2 crores to the customers in the State of Rajasthan during the month.The value of supply on which GST is payable for the month of April for the Rajasthan State is:
(a) Rs. 96 crores
(b) Rs. 100 crores
(c) Rs. 98 crores
(d) Rs. 102 crores
Answer: Rs. 100 Crores. (Explanation is given at the end of the article).
Question-2: Ghanshyam Das, a retailer in Gujarat, purchased goods worth Rs. 5 lakh in the month of January of the preceding financial year. Subsequently, the company offered an incentive on such purchases to Ghanshyam Das by issuing a commercial credit note of Rs. 50,000 in the month of April.
In relation to the incentive paid to Ghanshyam Das in Gujarat,
(a) the company shall reverse proportionate input tax credit.
(b) there is no GST implication on the company and Ghanshyam Das.
(c) Ghanshyam Das shall reverse the input tax credit availed on the purchase.
(d) the company shall reduce the tax liability and Ghanshyam Das shall increase the tax liability for the month of April.
Answer: There is no GST implication on the company and Ghanshyam Das. (Explanation is given at the end of the article).
Question-3: In above question, if such incentive/discount is provided in terms of agreement entered at the time of original supply and Ghansham has reversed the proportionate ITC on such 50,000. Would the Company be allowed to reduce its Tax liability against such incentive/discount.
a) Yes by issue of Credit Note as per Section-34
b) Yes by issue of Debit Note as per Section-34
c) Not allowed
Answer: Yes by issue of Credit Note as per Section-34. (Explanation is given at the end of the article).
Question-4: Company started discount scheme of 50% on the MRP for Diwali. In that case, Product with the MRP of Rs. 2000 (excl. GST) is being sold for Rs. 1000 (excl. GST). GST needs to be discharged on
a) Rs. 2,000
b) Rs. 1,000
Answer: 1,000. (Explanation is given at the end of the article).
Question-5: The company received an amount of Rs. 2 crores in April as penalty for delayed receipt of consideration from its customers for sale of goods made in the month of January of the preceding financial year in the retail store of Jaipur, Rajasthan.
The tax on penalty received on account of delayed payment of consideration is payable at the time of filing return of ___________.
(a) April
(b) January
(c) Either April or January at the option of the company
(d) No tax is payable on the penalty received on account of delayed payment of consideration.
Answer: (a) i.e. April (Explanation is given at the end of the article).
Question-6: How GST if applicable would be paid by the Supplier on such penalty.
(a) By way of issuance of Debit Notes
(b) By way of issuance of Credit Notes
(c) By way of issuance of Revised Invoice or Fresh Invoice
(d) No tax is payable on the penalty received on account of delayed payment of consideration.
Answer: (a) By way of issuance of Debit Notes (Explanation is given at the end of the article).
Question-7: What would be the GST Rate if applicable would be paid by the Supplier on such penalty.
(a) GST Rate as applicable to Original Goods/Services
(b) 18%
(c) No tax is payable on the penalty received on account of delayed payment of consideration.
Answer: (a) GST Rate as applicable to Original Goods/Services (Explanation is given at the end of the article).
Explanation
Discount Issue
As per Section-15(3), Value of Supply can be reduced with the amount of discount in case of following scenarios:
Discount on the Invoice
a) In case discount is duly recorded on the invoice. (For instance, in case MRP is Rs. 2,000 and 50% discount is provided on the invoice, Value for Payment of GST would be Rs. 1,000).
Discount provided after Supply
b) In case where discount is provided after supply (like volume discounts on achieving some targets), in these cases, discount can be reduced from value of supply if following conditions are satisfied:
i) such discount can be determined in terms of agreement entered on or before supply of Goods/Services, and
ii) Reciepient of Goods/Services has reduced proportionate ITC pertaining to such discount.
Further, in case of Discount provided after supply, Value of supply on account of discount (if admissible) can be reduced by way of Credit Note as per Section-34 of CGST Act (called GST Credit Note).
Furthermore, in case value of supply can not be reduced on account of discount/incentive as not admissible in terms of Section 15(3), in that case discount/incentive can be provided by the Supplier by way of issue of Commercial Credit Note.
In this case, there is no impact on GST liability and ITC availment of both Supplier & Reciepient (as per Institute Study material, relevant for Exam).
(However, practically in many of cases, Department is making cases against Reciepient by alleging that he has failed to make payment to its Supplier on account of discount/incentive received in the form of Commercial Credit Notes as required in terms of second proviso to Section 16(2).
Accordingly, quesiton-1 to 4 can be answered with the help of above explanations.
Issue of Penalty on Delayed Consideration
There may be cases where Supplier recover some penalty for delay in payment of consideration.
In this regard, there are two questions that needs to be answered:
a. Whether GST needs to be paid on such penalty:
Answer is yes as Section 15(2)(d), any penalty or interest recovered by Supplier for delay in consideration is to be included in the Value of Supply of original Goods/Services.
Further, since penalty is to be made part of value of supply of original Goods/Services, GST rate would be applicable as was applicable to original Goods/Services.
Furthermore, additional GST on such penalty would be issued by way of issuance of Debit Note as per Section-34. (to increase the valuation).
a. At what time GST would be required to be paid (Time of Supply):
As per Section-12 (6) & 13(6), time of supply for such penalty/interest would be the date on which such penalty is being received.
Accordingly, quesiton-5 to 7 can be answered with the help of above explanations.
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
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