Tax Demand on Post Sale Discounts Received By Way Of Financial Credit Notes Not Tenable: Madras High Court

The Madras High Court has quashed the order imposing tax demands on post-sale discounts received by way of financial credit notes on the ground that receiving a discount is not tenable in law.

The bench of Justice Senthilkumar Ramamoorthy has observed that the assessing officer concluded that the taxable person is providing a service to the supplier while taking advantage of a discount by facilitating an increase in the volume of sales of such supplier. This conclusion is ex facie erroneous and contrary to the fundamental tenets of GST law.

The petitioner or assessee received a show cause notice calling upon the petitioner to show cause with regard to defects. The petitioner replied to show cause. The defect pertains to the reversal of input tax credit in respect of credit notes issued by the supplier.

Sub-section (3) of Section 15 of applicable GST statutes provides for a reduction in the value of supply on account of a discount if such discount has been duly recorded in the invoice issued in respect of such supply or if such discount is established in terms of an agreement entered into either before or at the time of supply, although the supply may be subsequent to such agreement. The assessee contended that, as per sub-section (3) of Section 15 of applicable GST statutes, the value of supply would not include a discount only if the conditions prescribed in clauses (a) or (b) of sub-section (3) are satisfied. According to him, the case at hand does not fall within the scope of sub-section (3). Consequently, he contends that the credit notes issued by the supplier were financial credit notes. The recipient or tax payer is not liable to reverse input tax credit to the extent of the value of credit notes.

The assessee argued that the discount offered by the supplier was erroneously construed as a service provided by the purchaser to the supplier. The order calls for interference.

The court held that the order is set aside only insofar as a defect relating to the reversal of input tax credit for the value of credit notes issued by the supplier is concerned.

Counsel For Petitioner: G.Natarajan

Counsel For Respondent: C.Harsha Raj

Case Title: Tvl. Shivam Steels Versus Assistant Commissioner (ST)(FAC)

Citation: 2024 LiveLaw (Mad) 265

Case No.: W.P.No.15335 of 2024 and W.M.P.Nos.16659 & 16661 of 2024

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