Summary of the Mechanism for verification of ITC Reversal on Post sale discounts
GST Circular No 212/06/2024 states the Mechanism for verification of ITC Reversal on Post sale discounts. Where the discounts are offered by supplier after delievring goods or services, they issue tax credit notes. Section 15(3)(b)(ii) of the CGST Act,2017 specifies that, this discount should not be included in the taxable value if the recipient reverses the ITC related to the discount. However, businesses and the tax authorities have raised concerns that there is no system on the GST Portal for suppliers or Tax officers to check if the recipient has actually reversed the ITC. they are requesting a proper mechanism to help verify if this condition is being met, ensuring compliance with the CGST rules regarding discounts and ITC reversal.
- Section 15 of CGST Act provides for value of taxable supply of goods oe services or both. Section 15(3) of CGST Act states that the value of the supply shall not include discount given by supplier subject to certain conditions. When supplier gives discount after delievring the goods or services, that discount can be excluded from the taxable amount if :
- The discount is established in terms of agreement entered in to at or before the time of supply
- The discount must be specifically linked to relevant invoices
- ITC on the discount has been duly reversed by the recipient
- Currently there is no system available on the portal to verify that whether or not the recipient has reversed the ITC related to such discount.Until a proper verification system is available on the GST portal, the supplier can ask the recipient to provide a certificate from CA or CMA confirming that the recipient has made the necessary ITC Reversal for the discount reflected in tax credit note. The certificate should include following details :
- The credit notes details
- Invoice number linked to credit note
- ITC Revesal amount for each credit note
- Details of GST form like GST DRC-03 or any other documents showing how the ITC was reversed by recipient.
- The certificate must include a Unique Document Identification Number (UDIN) which can be verified on the websites of ICAI for CAs or ICMAI or CMAs. If the tax involved in the discounts is less than Rs.500000 in FY, the supplier can get undertaking/certificate directly from the recipient instead of CA/CMA certificate confirming the ITC reversal with necessary details.
- These CA/CMA certificates or recipient undertakings will be accepted as valid proof for fulfilling the condtion u/s 15(3)(b)(ii) of the CGST Act. The supplier should keep these documents ready to present to tax officers if required during audits, investigations or any other tax related procedings. Even for previous periods, the supplier can provide these certificates or undertakings to tax authorities to show that the recipient reversed the ITC for post-sales discounts.
