No GST on Discount and Incentives of Purchase: AAR Karnataka [Read Order]

In a recent case the applicant M/S Kwality mobikes, the Authority for Advance Ruling in Karnataka held that the volume discount received on purchase and retail in the form of credit note without any adjustment of GST is not liable for GST.

The brief fact of the case is that the applicant is in the business of supplying motor vehicles. The applicant in its regular course of business purchases the vehicles from the authorised supplier and it charges 28% GST plus applicable cess. The authorised supplier allows the credit period of 30 days and also fixes sale targets to the applicant. Besides the purchase of the vehicle which is over and above the limit fixed on the regular purchase, the applicant is also eligible for a volume discount, which is paid on a monetary basis. The authorised supplier issues a credit note and this credit note is not affecting the purchase price or sale price and hence no effect on GST collected in the invoices. The question involved in this application is whether the volume of discount received on purchases and retail is liable for GST.

The applicant submitted that the authorised supplier is issuing a tax invoice on the supply of goods to the applicant is taking credit of the input tax charged in the invoice. The applicant when making more purchases is eligible for the volume discount on purchases and also the applicant when sells more than his target is eligible for the incentive and credit note is issued by the authorised supplier and no adjustment of price and GST  is done either by the applicant or the authorised supplier. Hence the amount received in the form of incentive and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same. The credit note is issued as a post-sale event and which is not covered under section 15(3) of the CGST Act, 2017.

The authority comprising of members Harish Dharmia and Dr. Ravi Prasad.M.P held that the volume discount received on purchase and retail in the form of credit note without any adjustment of GST is not liable for GST. And also the amount received in the form of the credit note is actually a discount not supplied by the applicant to the authorised supplier, the applicant need not issue a tax invoice for this transaction.