Whether payment not made within 180 days to supplier can be treated as discount as per Section 16(2) ?
In many cases, it can be found that the supplier has offered a discount to the buyer which is neither shown in the tax invoice nor is it agreed upon between them. This is common in trade practice and is usually dependent on the supplier and buyer relationship. In such a case, a discount is provided at the time of making payment and the supplier simply receives the invoice value of the supply less the discount he has agreed to provide. Usually the supplier raises a Commercial / Financial credit note which will not contain the GST amount and will not be as per Section 34 read with Rule 53 of the CGST / KGST Acts and Rules. This will not result in a change in the supplier’s liability i.e. the taxable value remains as stated in the invoice and the GST on the same would also have been paid by him as stated in the invoice. For the buyer too, there is no change in the value and ITC to be claimed but only a reduction in the amount payable to supplier. In order to understand the impact of 180 days on these types of discounts, we need to analyze the meaning of ‘payment’ and ‘value of supply’ in this scenario. As clearly stated in Section 15, the value of supply will categorically not include discount if it does not comply with section 15 provisions. Hence, it’s understood that the entire value of supply along with the GST amount has to be paid to the supplier within 180 days of the invoice date in order for the buyer to be eligible for full claim of ITC and the discount offered shall not be reduced from the value of supply. In case of payment to be made, the Merriam-Webster dictionary defines pay as ‘to make due return to for services rendered or property delivered’ and ‘to discharge indebtedness for’. The term payment is also not defined in GST acts. It’s also to be noted that the second proviso to Section 16 does not state the mode of payment to be made. Now, it must be understood that in accounting for transactions like these, the supplier usually credits the buyer’s trade receivable account and debits the discount as an expense to his profit and loss account thus discharging the indebtedness from the buyer. Hence, if commercial or financial credit note is issued in order to settle such discounts, then it can be considered as payment for the purpose of payment within 180 days. The same interpretation was held for Service Tax as clarified in Board Circular No. 122/3/2010‐ST dated30/4/10.
Important Judgements for Section 16(4) :-
In case of META TILES PRIVATE LIMITED V/S UNION OF INDIA, HON’BLE BOMBAY HIGH COURT has issued notices to the department considering the following facts :
declaration of the conditions as prescribed in Section 16(4) of the Act as merely procedural in nature which cannot override substantive conditions as mandated under Section 16(1) and Section 16(2) of the Act.
(Hon’ble Calcutta high court has also issued notices to the revenue on the same grounds.
