GST suppliers giving discounts must ensure undertaking from client: CBIC

Suppliers giving post-sale discounts through credit notes under GST will have to ensure that the client gives an undertaking or a CA certificate stating that the ITC availed on the discount value has been reversed, the CBIC has said.

Currently, there is no mechanism to track whether the Input Tax Credit (ITC) on such discounts has been reversed or not.

Till the time a functionality is made available on the common portal to enable the suppliers as well as the tax officers to verify the reversal, the supplier may procure a certificate from the recipient of the supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that the recipient has made the required proportionate reversal of ITC at his end in respect of such credit note issued by the supplier.

In cases, where the amount of tax (CGST+SGST +IGST and including compensation cess, if any) involved in the discount given by the supplier to a recipient through tax credit notes in a financial year does not exceed Rs 5 lakh, then instead of CA/CMA certificate, then the supplier will have to get an undertaking from the said recipient.

Moore Singhi Executive Director Rajat Mohan said the circular has a retrospective effect, impacting all demands on this issue since 2017. Taxpayers engaged in litigation on this point can leverage this clarification for relief.

"Going forward, this will significantly benefit the industry by clarifying the process for issuing credit notes. The circular mandates obtaining CA/CMA certifications or self-certifications for smaller transactions, which increases the documentation burden and necessitates updates to accounting systems. This circular demands meticulous compliance but promises long-term benefits in terms of predictable and streamlined GST operations," Mohan said.

EY Tax Partner Saurabh Agarwal said these documents, with a unique ID number, serve as proof for audits and ensure consistent application of GST rules on post-sale discounts. This would help in resolving the disputes between the tax department and the businesses.

In a separate circular, Central Board of Indirect Taxes and Customs (CBIC) clarified that ITC is available to insurance companies in respect of motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement.

"In cases where the garage issues two separate invoices in respect of the repair services, one to the insurance company in respect of approved claim cost and second to the customer for the amount of repair service in excess of the approved claim cost, input tax credit may be available to the insurance company on the said invoice issued to the insurance company subject to reimbursement of said amount by insurance company to the customer," it said.

However, if the invoice for the full amount for repair services is issued to the insurance company while the insurance company makes reimbursement to the insured only for the approved claim cost, then, the input tax credit may be available to the insurance company only to the extent of reimbursement of the approved claim cost to the insured, and not on the full invoice value.