The Department of Commercial Tax, Rajasthan, has issued an important notification that suppliers and tax officers need to be aware of on July 9th 2024. This update, clarifies how to handle discounts given after a supply has been made and the associated input tax credit (ITC) reversals.
The Issue Faced:
Suppliers often offer discounts to their customers after the sale has been completed. According to the Rajasthan Goods and Services Tax (RGST) Act, 2017, these discounts can be excluded from the taxable value of the supply. However, there’s a catch: the recipients (buyers) must reverse a proportionate amount of the ITC they initially claimed on these discounted supplies. This has been a tricky area for both suppliers and tax officers to verify.
Purpose of the Notification:
To provide a mechanism for suppliers and tax officers to verify compliance with the condition of proportionate reversal of ITC by recipients in respect of discounts given by suppliers through tax credit notes issued after the supply.
Key Points of the Notification
- Section 15 of the RGST Act: This section talks about how to determine the value of taxable supplies. Sub-section (3) allows for discounts to be excluded from this value if certain conditions are met. Specifically, discounts given after the supply can be excluded if they meet the criteria outlined in Section 34 of the Act.
- Discounts and Tax Credit Notes: When a supplier offers a discount after the sale, they issue a tax credit note. This note allows the discount to be excluded from the taxable value, but only if the recipient reverses the appropriate amount of ITC.
- Current Verification Mechanism:
- Right now, there isn’t a digital feature on the GST portal that lets tax officers verify if recipients have reversed the ITC for these post-supply discounts.
- Until such a feature is available, suppliers must get a certificate from their recipients. This certificate should be issued by a Chartered Accountant (CA) or a Cost Accountant (CMA), confirming that the recipient has reversed the necessary ITC for the discounts shown in the tax credit notes.
If you’re a supplier, you need to make sure that any post-supply discounts you offer are properly documented. You also need to obtain a certificate from your customers (recipients) confirming that they have reversed the correct amount of ITC. This certificate must come from a qualified CA or CMA.
For tax officers, this notification provides clarity on how to handle these cases until the GST portal has the necessary functionality to verify ITC reversals directly.
