ITC shall be allowed only on net amount paid to supplier : AAR

Ruling by AUTHORITY FOR ADVANCE RULING TAMIL NADU in matter of MRF LTD : As per the Provisions of Section 16 of the CGST Act 2017, the Applicant can avail Input Tax Credit only to the extent of the invoice value raised by the suppliers less the discounts i.e. amount which is paid by him to the suppliers.

ITC shall be allowed only on net amount paid to supplier : AAR

Relevant Extract of Ruling is given below for reference :

4.1. We have gone through the submissions made by the Applicant. It is seen from the brochure of C2FO that the SAP system of MRF will be interfaced with the cloud server of C2FO. The invoices for receipt of goods or services received by the Applicant are uploaded onto the system. The vendors, registered on the C2FO software platform, place discount offer, either Annual Percentage Rate or flat discount to receive early payment. The C2FO algorithms use settings of desired annual percentage rate, minimum Annual percentage rate, cash availability to decide on which invoices are chosen for early payment. This process happens continually in which the discount offers can be varied by the vendors which would determine the amount and date of payment for each of these invoices. Screenshots of the software pertaining to the Applicant shows that the Applicant can set a desired annual percentage rate either monthly or quarterly and also set the cash availability monthly. This cash availability can be replenished periodically. It displays the suppliers who are participating at any given time. Screenshots of software pertaining to the suppliers show that each invoice is shown with original due date, invoice amount, discount offered and how many days it was paid earlier than due date.

4.2. From the various submissions, it is seen that the Applicant intends to enter into an agreement with C2FO for setting up an interactive automated data exchange which can be installed for data interaction relating to sale & purchase of goods and services between them and their Suppliers. Both the Supplier and Recipient of goods or services should register on the platform provided by C2F0. From the transactions envisaged in the platform, it is seen that a schedule is to be defined, based on which approved open invoices and supplier data is picked for offering the same for discounting by the supplier and if agreed by the supplier, the discounted invoices are placed for early payment. It is observed that by registering in the platform, the supplier is agreeable to offer certain discount in return for an early payment and the discount offer can either be as APR (Annual Percentage Rate) or flat discount pre-fixed. Based on the discounted invoice the applicant pays the supplier. The supplier on raising the invoice (undiscounted price), pays the applicable GST. The Applicant on receipt of the goods/services and the invoice avails the tax paid by the supplier as credit and thereafter when such invoice is staged for discount against early payment in the C2FO platform and the price is discounted, only the discounted amount is paid by the applicant to his suppliers and not the amount indicated in the invoice. The Applicant claims that there is no need on their part to reverse the Input Tax credit availed by them in proportion to the discount in the invoice price. The Applicant has sought ruling only on whether proportionate ITC is to be reve rsed . The Applicant has stated that the discount in price which is offered through the platform is not captured in the Purchase order/ agreement. The question before us relates to admissibility of the ITC to the extent of the undiscounted value or of the value after discount and requirement of reversal of proportionate credit.

4.3. The eligibility to Input Tax Credit is governed under Section 16 of CGST Act 2017/TNGST Act 2017. The relevant provisions are given under for ease of reference:

Section 9 of CGST Act

9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

Section 12 of CGST Act states:

12. (1) The liability to pay tax on goods shall anse at the time of supply, as determined in accordance with the provisions of this section.

(2) The time of supply of goods shall be the earlier of the following dates, namely:-

(a) the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or

(b) the date on which the supplier receives the payment with respect to the supply:

Section 15 (3) of CGST Act states

(3) The value of the supply shall not include any discount which is given-

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if-

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Section 16 of CGST Act

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

4.3. Section 16(1) states that a registered recipient is eligible to take credit on the input tax charged on any supply of goods or services. As per Section 9(1) of the act, CGST tax is leviable on the value of supply as determined by Section 15 of the Act. Section 15 (3) states that value of supply does not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply and those discounts given after the supply has been effected, if such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices and input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. Time of supply of goods as per Section 12 is the earlier of the following dates, namely the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply or the date on which the supplier receives the payment with respect to the supply.

4.4. In the instant case, the invoices are all raised before the payment dates, so the time of supply is the date of raising invoices. The discount is given after the invoices are raised and supply of goods is made and no discount is recorded in the invoice. Hence, Section 15 (3) (a) does not apply. All the invoices are uploaded by the supplier in the C2FO software after they are raised. Based on various parameters such as desired annual percentage discount rate, cash availability set by the recipient and the varied offers of discounts made by the suppliers based on their need for an early payment, C2FO software optimizes the dates of early payment for each invoice and determines the final discounted transaction value of a particular invoice. The C2FO platform is a marketplace model where both the Applicant/ recipient and his suppliers are registered but the discounts offered are not mentioned in the supply contract between the applicant and his suppliers at the time of raising invoices or before, though the discounts are specifically linking the relevant invoices. In the event such an agreement exists indicating the discount mechanism made possible by C2FO software and the applicant reverses the input tax credit pertaining to the discount, such a discount is allowed and he value of supply would be the discounted value. However, this is not the case here and hence, Section 15 (3) (b) does not apply in the instant case. Therefore, the value of supply in such transactions is the full undiscounted value mentioned on the invoice.

4.5. Proviso to Section 16 states that where a recipient fails to pay to the supplier of goods or services or both, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, and the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. In the instant case, the value of supply is the full undiscounted value indicated in the tax invoice and the recipient / Applicant only makes payment to the extent of invoice value less the discount thrown up by the C2FO software. As per proviso to Section 16, the recipient is entitled to avail the credit of input tax on the payment made by him alone and if any amount is not paid as per the value of supply and the recipient has availed full input tax credit, the same would be added to his output tax liability. Therefore, in the instant case, the Applicant can avail Input Tax Credit only to the extent of the invoice value less the discounts asper C2FO software. If he has availed input tax credit on the full amount, he should reverse the difference amount equal to the discount, to avoid adding to his output liability.

5. In view of the above, we rule as under:

RULING

As per the Provisions of Section 16 of the CGST Act 2017 /TNGST Act 2017, the Applicant can avail Input Tax Credit only to the extent of the invoice value raised by the suppliers less the discounts as per C2FO software which is paid by him to the suppliers.

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