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CMA Intermediate · Direct and Indirect Taxation · Computation of GST Liability

Nair Foods sold goods to Iyer Stores for Rs 3,00,000 under an agreement made before the supply, which specifically linked a 5% post-supply discount to the relevant invoices. After the supply, Nair issued a Rs 15,000 credit note. Which statement determines whether the discount can be excluded from value of supply?

The discount is excluded only if the recipient has reversed the input tax credit attributable to it. A post-supply discount needs both an agreement at or before supply specifically linked to invoices and the recipient's credit reversal; the agreement alone is insufficient.

  1. AIt can be excluded only if Iyer has reversed the input tax credit attributable to the discountCorrect
  2. BIt can be excluded because the agreement existed, whether or not Iyer reverses the credit
  3. CIt cannot be excluded as any discount after supply is included in value
  4. DIt can be excluded only if the discount is recorded in the original invoice

Explanation

Section 15(3)(b) permits exclusion of a post-supply discount only if it is established by an agreement at or before the supply and linked to invoices, and the recipient has reversed the input tax credit attributable to the discount. Both conditions are needed, so the agreement alone is not enough.

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