2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
3.3
3.4
3.5
3.6
CLASSIFICATION OF GOODS AND SERVICES
4.1
4.2
4.3
VALUE OF TAXABLE SUPPLY OF GOODS
BOTH
4.6 Rate of exchange of currency for determination of value 77
4.7 Determination of value when value not ascertainable 77
4.8 Value of supply of goods or services or both between distinct or related persons, other than through an agent 79
4.9 Value of supply of goods or services or both based on cost 81
4.10 Residual method for determination of value of supply of goods or services or both 82
4.11 Margin scheme for valuation in buying and selling second hand goods 82
4.12 Value of supply of services in case of pure agent 84
4.13 GST on Reimbursement of expenses 85
5
INPUT TAX CREDIT (ITC)
5.1 ITC is core provision of GST 87
5.2 Manner of taking input tax credit 90
5.3 Requirements for availing Input Tax Credit 94
5.4 Blocked credit - Supply of goods and services ineligible for ITC 108
INPUT TAX CREDIT WHEN EXEMPTED AS WELL
AS TAXABLE
SUPPLIES MADE
6.1 Proportionate ITC when partly used for business or taxable supplies 126
6.2 Special provisions in respect of Banks, FI and NBFC 130
6.3 Determination of input tax credit when partly used for taxable supply and partly for exempt supply 131
6.4 Determination of input tax credit in respect of capital goods used partly for taxable supply and partly for exempt supply 133
6.5 Reversal of Input Tax Credit means ITC not taken 134
INPUT TAX CREDIT - OTHER ISSUES
7.1 Input Tax Credit of capital goods 136
7.2 Merger, amalgamation or sale of business 138
7.3 Input Tax Credit when taxable person becomes eligible for first time 141
7.4 Reversal of input tax credit if goods become exempt or taxable person switches to composition scheme 143
7.5 Recovery of ITC wrongly taken 146
INPUT SERVICE DISTRIBUTOR (ISD)
8.1 Purpose of Input Service Distributor 147
8.2 Procedure for distribution of credit from 1-4-2025 149
8.3 Tax invoice by taxable person in name of input service distributor with same PAN and same State Code 150
8.4 Provision of ISD was optional upto 31-3-2025 if branch division eligible for entire ITC 151 9
PLACE OF SUPPLY OF GOODS OR SERVICES OR BOTH OTHER THAN EXPORTS AND IMPORTS
9.1 Importance of place of supply 152
9.2 Place of supply of goods other than imports and exports 156
9.3 Bill to ship to transaction 158
9.4 Place of supply of services if location of supplier and recipient of service is in India 159
9.5 Place of supply of service except export or import of services - Residuary provision 162
9.6 The place of supply of services in cases directly relating to immovable property or lodging in boat or vessel 162
9.7 Performance based services i.e. Restaurant, beauty treatment, health services 164
9.8 Training and performance appraisal service 164
9.15
9.16
9.17
9.18
9.19
9.20
REVERSE CHARGE
11.1 Meaning of reverse charge 182
11.2 General provisions applicable where reverse charge applies 184
11.3 Reverse charge in case of receipt of supply from unregistered person 186
11.4 Inter-State transactions - Whether IGST payable or CGST and SGST/UTGST payable under reverse charge 187
11.5 Persons supplying services where service recipient is liable to pay GST under reverse charge need not register under GST 188
11.6 Procedure for reverse charge 189
11.7 Supply of goods where GST payable under reverse charge 190
11.8 Supply of services liable for reverse charge 192
12
PROCEDURES IN GST
12.1 Background
12.2 Administration of GST
12.3 Proper Officer under section 74A, section 75(2) and section 122 of CGST Act and rule 142(1A) 210
12.4 Common Portal
12.5 Accounts and other records
12.6 Audit by Chartered/Cost Accountant in GSTR-9C not required after 2020-21 212
12.7 Period of retention of accounts
12.8 Requirement of registration
12.9 Persons who are not required to register under GST 217
12.10 Persons requiring registration without threshold limit of 40/20/10 lakhs
12.11 Requirements and procedure for registration
12.12 Multiple registrations for multiple places of business in a State or Union Territory 227
12.13 Voluntary registration 228
12.14 Registration by person liable to Deduct Tax at Source (TDS) 228
12.15 Registration by non-resident taxable person
12.16 Unique Identity Number (UIN) to UN Agencies, Embassy, Consulates and other persons without registration 229
12.17 Registration of casual taxable person and non-resident taxable person 229
12.18 Grant of registration to a person supplying Online Information and Data base Access or Retrieval services (OIDAR) from a place outside India to a non-taxable online recipient 231
12.19 Grant of registration to persons required to deduct tax at source or to collect tax at source
12.20 Amendment of registration
12.21 Invoice for supply of goods or services or both
12.22
12.23
12.24 Bill of Supply when no tax invoice is required
12.25 Receipt voucher in case of receipt of advance
12.26 Invoice and payment voucher when GST payable under reverse charge, if supplier not registered
12.27 Credit note, debit notes or supplementary invoice
12.28
12.29
12.30
(ELR)
12.34 GSTR-3B return by every registered person supplying goods or services or both
12.35 Furnishing details of outward supplies in Form GSTR-1
12.36 Communication of details of eligible and not eligible ITC
12.37 Annual return GSTR-4 by taxable person paying tax under composition scheme
12.38
12.39
E-WAY BILL FOR TRANSPORT OF GOODS
13.1 Background of e-way bill provisions
13.2 Generation of e-way Bill
13.3 Part B of the Form GST EWB-01
13.4 When Part B is not required to be filled in
13.5 Generation of e-way bill by portal
13.6 Procedure by transporter after generation of e-way bill
13.7 Intimation of acceptance of details by recipient/supplier 333
13.8 Transport of goods for which e-way bill is not required
13.9 Other provisions relating to e-way bill
13.10 Road checks and verification of documents and conveyances
13.11 Penalty for transporting goods without valid documentsprovisions w.e.f. 1-1-2022
13.12 Confiscation of goods or Conveyance and levy of penalty 352
MISCELLANEOUS ISSUES IN GST
14.1 Anti-Profiteering
15.1 Coverage of GST on transactions relating to real estate
15.2 Sale of developed plots by including development cost in sale value of plots is not taxable under GST
15.3 Refrain from Act or tolerating an Act
15.4 Services of housing societies or Resident Welfare Association for monthly contribution 380
REAL ESTATE SERVICES RELATING TO RESIDENTIAL AND COMMERCIAL APARTMENTS
16.1 Background 385
16.2 Definitions of various terms used 394
16.3 GST Rate w.e.f. 1-4-2019 on various types of real estate projects 402
16.4 Value for GST when total amount charged includes value of land 406
16.5 Reverse charge if receipts of input and services and capital goods received from registered supplier 409
16.6 Provisions in respect of ongoing projects where promoter opts to avail Input Tax Credit 411
16.7 Apportionment of ITC between taxable supply and exempt supply on basis of value except in case of real estate services 414
16.8 Contracts for construction of affordable residential apartments 414
16.9 Valuation of apartments sold by promoter 416
16.10 Development of land into plots by joint development agreement 419
16.11 Sale of apartments by land owner-promoter 420
TDR/FSI/UPFRONT AMOUNT IN LONG TERM LEASE IN REAL ESTATE TRANSACTIONS
17.1 Tax on real estate transactions except sale of land or completed building/apartment 422
17.2 Transfer of development rights 423
17.3 Transferable Development Rights i.e. transfer of FSI 424
17.4 GST on Upfront amount payable for long term lease of land 426
17.5 GST on Development Rights/FSI/Upfront Amount in real estate transactions by promoter under reverse charge 429
17.6 Transfer of development rights/FSI after 1-4-2019 for construction of residential apartments exempt, if sold before completion 429
17.7 GST on Development Rights/FSI transferred or long term lease amount paid before 31-3-2019 435
17.8 Valuation of transfer of development rights and construction service provided by promoter 437
17.9 Accommodation/rent given to earlier tenants/owners during transition period 439
17.10 Joint Development by land owner and promoter 440
17.11 Summary of liability in case of transfer of development rights or FSI or long term lease of land 441
17.12 Area sharing arrangement between landowner-promoter and promoter developer 445
LEASING AND RENTING OF REAL ESTATE
18.1 Leasing or renting of land and building is ‘supply of services’ 449
18.2 Renting of Immovable Property 453
18.3 Renting Service supplied jointly by co-owners 459
18.4 Renting of precincts of a religious place exempt upto limit 459
18.5 Reverse charge in respect of Services supplied by the Central Government excluding the Ministry of Railways (Indian Railways), State Government, Union territory or local authority by way of renting of immovable property 460 19
CONSTRUCTION AND WORKS CONTRACT SERVICES
19.1 Tax on construction activity 461
19.2 Works contract service 461
19.3 Tax Rate of works contract as composite supply 470
19.4 Transactions Relating to Real Estate 477
19.5 GST on Construction of residential, Commercial or Industrial complex upto 31-3-2019 479
19.6 Distinction between construction service and works contract service
I-15
CONTENTS
19.7 Concessional in case of certain infrastructure related works contracts 481
19.8 Exemptions in respect of services supplied to Government 488
19.9 Main contractor is entitled to partial or full exemption does not mean sub-contractor is also exempt or entitled to concessional rate 488
20
GOVERNMENT RELATED ACTIVITIES
20.1 Public administration services 489
20.2 Services provided by Government which will not be subject to GST 497
20.3 Exemptions in respect of services supplied by Government 500
20.4 Exemptions in respect of services supplied to State/Central Government, Union Territory or Local Authority 506
20.5 Concessional rate in respect of certain services provided to State/Central Government, Union Territory and Local Authority 523
20.6 Reverse charge in respect of services provided by Central/ State Government, local authority or Union Territory, except railways and post 530
APPENDICES
APPENDIX I : RELEVANT SECTIONS OF CENTRAL GOODS AND SERVICES TAX ACT, 2017 539
APPENDIX II : RELEVANT SECTIONS OF INTEGRATED GOODS AND SERVICES TAX ACT, 2017 563
APPENDIX III : RELEVANT RULES FROM CENTRAL GOODS AND SERVICES TAX RULES, 2017 574
APPENDIX IV : RELEVANT EXTRACTS FROM NOTIFICATION NO. 11/2017-CENTRAL TAX (RATE), DATED 28-6-2017 616
APPENDIX V : RELEVANT EXTRACTS FROM NOTIFICATION NO. 12/2017-CENTRAL TAX (RATE), DATED 28-6-2017 637
APPENDIX VI : CALCULATION OF ITC ATTRIBUTABLE TO RESIDENTIAL PORTION IN REAL ESTATE PROJECT (REP) OTHER THAN RREP 648
APPENDIX VII : CALCULATION OF ITC ATTRIBUTABLE TO RESIDENTIAL PORTION IN RESIDENTIAL REAL ESTATE PROJECT (RREP) OTHER THAN REP 656
APPENDIX VIII : CALCULATION OF GST PAYABLE UNDER REVERSE CHARGE WHEN INPUTS AND INPUT SERVICES PROCURED FROM UNREGISTERED PERSONS 662
APPENDIX IX : DECLARATION FOR EXERCISING OPTION TO AVAIL ITC IN RESPECT OF ONGOING PROJECTS 664
APPENDIX X : REVERSE CHARGE IN RESPECT OF SERVICES 666
APPENDIX X-A : SECTION 5 OF THE IGST ACT, 2017 - LEVY & COLLECTION OF TAX - REVERSE CHARGE ON CERTAIN SPECIFIED SUPPLIES OF SERVICES 675
APPENDIX XI : TIME OF SUPPLY WHEN PROMOTER IS LIABLE TO PAY GST UNDER REVERSE CHARGE 685
APPENDIX XII : PERSON LIABLE TO PAY TAX UNDER REVERSE CHARGE ON SUPPLIES RECEIVED FROM UNREGISTERED PERSON IN REAL ESTATE PROJECTS 687
APPENDIX XIII : TIME OF SUPPLY WHEN LAND OWNER TRANSFERS DEVELOPMENT RIGHTS OR FSI TO PROMOTER IN RESPECT OF RIGHTS TRANSFERRED PRIOR TO 31-3-2019 689
APPENDIX XIV : CLARIFICATIONS ON REAL ESTATE PROJECTS PART I 690
APPENDIX XV : CLARIFICATIONS ON REAL ESTATE PROJECTS PART II 706
SUBJECT INDEX 715
VALUE OF TAXABLE SUPPLY OF GOODS
OR SERVICES OR BOTH
4.1 Transaction value is basis for valuation
The value of a supply of goods or services or both shall be the transaction value, that is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply - section 15(1) of CGST and SGST Act.
Conditions for accepting transaction value for valuation - The conditions for accepting transaction value are - (a) supplier and recipient should not be related (b) price is sole consideration.
4.1-1 Value does not include GST but includes other taxes
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act or GST (Compensation to States for Loss of Revenue) Act; are includible in value, if charged separatelysection 15(2)(a) of CGST Act.
Thus, SGST and CGST will be payable on net value only.
‘Value’ for GST will not include IGST, CGST, SGST, UTGST and GST Compensation Cess. However, other taxes (like entertainment tax or some other cess) will be includible if charged separately in invoice.
‘Value’ does not include TCS under Income Tax Act - The Value does not include Tax Collected at Source under Income Tax Act, as TCS is not a tax on goods but an interim levy on income - para 5 of CBI&C circular No. 76/50/2018-GST dated 31-12-2018 as amended vide corrigendum No. 20/16/04/2018-GST dated 7-3-2019.
What is meant is that if amount of invoice is 100 and TCS is Rs 2, GST is payable on 100 and not 98.
Value for payment of IGST, CGST and SGST in Kerala State would not include Kerala Flood Cess - As per rule 32A of CGST Rules inserted w.e.f. 28-6-2019, Value for payment of IGST, CGST and SGST will not include Kerala Flood Cess payable under clause 14 of Kerala Finance Bill, 2019.
4.1-2 Amount paid by recipient on behalf of supplier
Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both is includible in value - section 15(2)(b) of CGST Act.
This cannot cover free inputs or services supplied by recipient, as only ‘amount’ paid by recipient on behalf of supplier is includible. This would be so only where there was contractual liability on supplier to make those supplies. However, if amount was contractual liability of supplier but paid by recipient on his behalf, that amount will be includible in ‘value’ for purpose of payment of GST.
Even if this amount is addible in value, obviously payment will not be received in respect of this amount from recipient. Normally, if payment is not received from recipient, proportionate input tax credit has to be reversed as per section 16(2) of CGST Act. However, in such cases, it will be deemed that the payment has been received. Thus, reversal of proportionate input tax credit will not be required – second proviso to rule 37(1) of CGST Rules, inserted w.e.f. 13-6-2018.
This second proviso should apply with retrospective effect, though the rule does not specifically say so.
Contract includes value of material but some material supplied by recipient and value deducted from bill of supplier - In GVS Projects P Ltd. In re (2020) 82 GST 459 = 117 taxmann.com 911 (AAR-AP), the contract with customer included value of material. However, some material was supplied by recipient and its value was recovered from running bill of supplier. It was held that value of materials recovered on cost recovery basis by the contractees from RA Bills of contractor is includible in value of supply as per section 15(2)(b) of CGST Act [In my view, contractee should issue tax invoice to contractor, so that contractor can take ITC of GST charged to him by contractee].
4.1-3 Incidental expenses incurred before supply
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of the goods or, as the case may be, supply of the services are includible in value - section 15(2)(c) of CGST Act.
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be includible in ‘value’. Design charges incurred before supply will also be includible.
4.1-4 Interest, late fee or penalty for delayed payment
Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value - - section 15(2)(d) of CGST Act.
The term ‘delayed’ obviously means ‘delay beyond agreed terms’. This interpretation can also be justified because the word ‘interest’ has been used with the words ‘late fee’ or ‘penalty’. This is on the principle of ‘Noscitur a sociis’- Meaning of a word should be gathered from its context i.e. by associate words.
Thus, GST should not be leviable on normal interest payable by recipient as per agreed terms of contract.
This is also justifiable from the fact that ‘interest’ is an exempt supply as per Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
GST is payable on penal interest collected on default in payment of EMIBajaj Finance Ltd. In re (2018) 99 taxmann.com 236 (AAR - Maharashtra).
GST on penal interest on EMI (Equated Monthly Instalment) - Often loan granted for purchase of goods is repaid in Equated Monthly Instalments (EMI). The EMI includes both principal and interest. If EMI is not paid within scheduled time, additional/penal interest is charged. CBI&C, vide circular No. 102/21/2019-GST dated 28-6-2019 has clarified as follows -
(
a) If the seller himself grants EMI instalments - In this case, if the seller charges penal interest, it will be part of value of goods as per section 15(2)(d) of CGST Act and GST will be payable by seller, even if charged separately at rate applicable to sale of goods.
(
b) If loan is provided by finance company directly to the buyer - If loan is granted by finance company or Bank to buyer, the seller of goods is out of picture once sale is made. The buyer pays EMI and penal interest amounts to finance company/Bank. In this case, the interest (including penal interest) is exempt under Sr. No. 27 of Notification No. 12/2017-CT (Rate) dated 28-6-2017.
In Infrastructure Development Finance Co. Ltd. v. ACIT [2019] 104 taxmann.com 205 (Mad HC), it has been held that liquidated damages recovered from borrowers in case of default in case of payment of interest and other dues (which was 2.10%), was really ‘interest’. [Decision under section 10(23G) of Income Act but principle can apply to GST].
In a contrary view, it was held that Receipt of penal charges by finance companies on delayed payment of EMIs would be receipt of amounts for tolerating act of their customers for having delayed/defaulted on their EMI payments and would be taxable as supply as per Sr. No. 5(e) of Schedule II of CGST Act - Bajaj Finance Ltd., In re [2018] 99 taxmann.com 236 (AARMaharashtra).
Now this decision may not be valid in view of CBI&C circular, but would still be binding on applicant (unless set aside by competent authority) as departmental circular cannot override decision of AAR.
4.1-5 Tax payable when value is inclusive of GST
Legally, GST is to be indicated separately in tax invoice. However, provision has been made for situations where GST is not shown separately in tax invoice. If value of supply is inclusive of IGST, CGST, SGST or UTGST, the tax payable will be calculated by back calculations as follows—
Tax amount = [Value inclusive of tax × Tax rate in % of IGST or CGST plus UTGST/SGST]/(100 + sum of applicable tax rates in %). - rule 9 of Valuation Rules - Rule 35 of CGST and SGST Rules, 2017.
Note that the provision applies only the value of supply included GST. The rule does not say that the value is deemed to be inclusive of GST.
For example, when GST is payable under reverse charge, the amount charged by supplier of goods or services cannot be taken as inclusive of GST.
Illustration - If value inclusive of IGST is Rs. 1180 and IGST rate is 18%, integrated tax amount (IGST) = (1,180 × 18)/(100+18) = 21,240/118 = 180. Value = 1,000. Check that value plus integrated tax = Rs. 1,180.
4.1-6
GST on outward freight, packing and other charges in tax invoice
In case of FOR basis contracts, the supplier arranges transport. In that case, he pays GST under reverse charge on outward freight. He then charges outward freight in the tax invoice. In such case, the outward freight charged is part of value of goods and GST is payable on value including outward freight. Similarly, packing charges, weighment charges and other charges are includible in value for levy of GST. The GST rate is same as applicable to goods, as this is a composite supply as per section 2(30) of CGST Act.
It is not correct to charge freight separately and charge GST @ 5% as the service of supplier of goods is not Goods Transport Agency Service at all.
4.2 Subsidies directly linked to supply other than Government subsidies
Subsidies directly linked to the price excluding subsidies provided by the Central and State Governments are includible in ‘value’ for charge of GST.
Explanation.—The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy - section 15(2)(e) of CGST Act. This is also made clear in definition of ‘consideration’ in section 2(31) of CGST Act.
4.3 Discount or incentive given after supply
The value of the supply shall not include any discount that is given:
(a) before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, provided that (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 has been reversed by the recipient of the supply - section 15(3) of CGST Act.
Thus, discount after supply is permissible as deduction only if it was known before or at the time of supply.
There is provision of issue of ‘credit note’ for deficiency in supply. However, section 34(1) of CGST and SGST Act do not make provision for issue of credit note for passing of discount which was not contemplated at the time of supply.
Further, if incidence of GST and interest has been passed on to another person, reduction in output tax liability of the supplier shall not be permitted - proviso to section 34(2) of CGST and SGST Act.
Supplier should issue credit note with GST - As per section 34 of CGST Act, debit note or credit note with GST can be issued only by supplier. Presently, one debit note can cover only one invoice. However, as per section 34(3) of CGST Act as amended vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019, one debit note can cover multiple invoices [ease of doing business].
In my view, he can issue credit note without GST if he does not want to disturb credit of GST taken by recipient. This view is confirmed in Para D of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
Para 4.3
However, if supplier does not issue credit note, recipient should issue debit note without charging GST. If he does not do so, it can be argued that the recipient has not made full payment to supplier and hence proportionate ITC is reversible. It may be noted that debit note and credit note are accounting methods of making and receiving payments.
There is ample case law that credit note issued by supplier means payment is made by recipient and payment is received by supplier. If commercial credit note is issued by supplier, the recipient is not required to reverse ITC attributable to commercial credit note issued by supplier, as the supplier is not reducing his original tax liability – Santosh Distributors In re (2021) 88 GST 566 = 132 taxmann.com 15 (AAAR-Kerala).
No adjustment of GST on bad debts - There is no provision for adjustment of GST in case of bad debt - FAQ No. 48 issued by CBI&C on banking sector on 27-12-2018.
Evidence that the recipient has reversed the Input Tax Credit in case of post sale discount - As per section 15(3)(b)(ii) of CGST Act, post-sale discount can be reduced from value of supply if input tax credit as is attributable to the discount has been reversed by the recipient of the supply.
Invoice Management System (IMS) has been introduced w.e.f. 1-10-2024. IMS will provide the tax-payers an opportunity to review genuineness and authenticity of the received invoices/credit notes. Invoices/credit notes uploaded by supplier in his GSTR-1/ GSTR-1A/ IFF will reflect on dashboard of the recipient. The recipient can accept or reject the Invoice. If he takes no action, it will be deemed to be accepted by recipient and will reflect in his GSTR-2B. If recipient keeps invoice pending, it will be carried forward on IMS Dashboard till either accepted or rejected by recipient. GSTR-2B will be generated only after GSTR-3B of previous month is filed. Liability of supplier will be increased in his GSTR-3B if original Credit Note or upward credit note is rejected by recipient.
Discount not allowed as deduction from ‘value’ if given for some specific purpose or activity - If the original seller (usually manufacturer or importer) sales goods to dealer and dealer sales goods to ultimate customer, the discount will not be allowable as reduction in ‘value’ in following cases – ( a) the original seller has agreement with ultimate customer to offer higher discount and he gives higher discount to dealer to that he can pass on additional discount to ultimate customer (b) Dealer is under obligation to undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, or customer support services, etc. for which additional discount is given to him-- CBIC Circular No. 251/08/2025-GST dated 12-9-2025.
TAXABLE SUPPLY OF GOODS OR SERVICES OR BOTH 70
[It is advisable to ensure to prepare scheme of discount in such a way that discount is only to enable increase in turnover and not for any specific purpose].
4.3-1 Quantity discounts - Buy more, save more - Discounts known before supply
In some cases, discounts are known before supply of goods or services but may be given after supply. In some case, staggered quantity discounts are offered based on quantity purchased by recipient.
Para C of CBI&C circular No. 92/11/2019-GST dated 7-3-2019 clarifies as follows -
Discounts offered by suppliers to customers (including staggered discount under ‘Buy more, save more scheme’ and post supply volume discounts established before or at the time of supply) are excluded to determine value of supply if such discount fulfils requirements of section 15(3) of CGST Act. Recipient is required to reverse ITC. However, supplier is entitled to full ITC of inputs, input services and capital goods in relation to supply of goods or services or both on such discounts (i.e. it is not necessary to reverse ITC proportionate to such discounts).
4.3-2 ‘Buy one get one free’ or ‘one item free’ offers
Often there are schemes like two soaps at the price of one or free tooth brush with tooth paste. Really, it is not ‘free supply’. In fact, it is case of two or more supplies with a single price. At the most, it can be treated as supply of two goods for the price of one. In such cases, rate of tax will depend on whether it is composite supply or mixed supply. Further, ITC will be available in relation to supply of goods or services or both as part of such offer Para B of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
4.3-3
Discounts offered after supply - Secondary discounts
Often, discounts are offered after supply of goods or services are made. Such discounts are not known before supply. In such cases, financial/commercial credit note(s) can be issued without GST. The recipient of goods or services can avail entire ITC of GST charged by supplier in his original invoice, without reversal of ITC - Para D of CBI&C circular No. 92/11/2019-GST dated 7-3-2019 view reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Financial/commercial credit note means credit note other than that specified in CGST Rules, i.e. without any GST implication. This is correct as credit note is one mode of adjusting liability and issue of credit note means payment has been received by supplier in full.
Post sale discounts without requiring dealer to do any further act - In some cases, post sales discounts are given by manufacturer or wholesaler (supplier) to dealer without any further obligation or action required at the dealer’s end. Such post sale discount will relate to original supply of goods. It would not be included in value of supply if conditions of section 15(3)(b) of CGST act are satisfied i.e. discount was known prior to supply. In such case, credit note with GST can be issued as per provisions of rule 53 of CGST Rules. If such discount was not known prior to supply, financial/ commercial credit note can be issued without GST. In that case, reduction is GST liability is not possible, but the recipient of goods or services is not required to reverse the Input Tax Credit of tax charged to him in the invoice of supplier - paras 3 and 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Post Sale discount where dealer is required to do further act - In some cases, post sale discount is given by manufacturer/wholesaler to dealer requiring dealer to undertake further obligation like special sales drive, advertisement campaign, exhibition etc. In that case, the additional discount given is for undertaking such activity and would be in relation to service supplied by dealer to supplier of goods (manufacturer/wholesaler). In that case, the dealer will be liable to issue tax invoice to supplier (manufacturer/ wholesaler) and charge GST. The supplier of goods (manufacturer/wholesaler) can take Input Tax Credit of such tax of GST charged to him by the dealer - para 3 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Additional post sale discount given by supplier to dealer to augment sales - In some cases, the dealer may have to sale the goods at lower prices (may be even below purchase price) to augment sales, due to market conditions. In such cases the supplier (manufacturer/wholesaler) gives additional discount to the dealer, to enable dealer to sale at lower prices. This additional discount is additional consideration by supplier of goods (manufacturer/ wholesaler) to the dealer. The dealer would be liable to pay GST on that amount - para 4 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
The circular says that this additional consideration would be liable to be added to the consideration payable by the customer for the purpose of arriving value of supply in the hands of dealer. However, the final customer can get ITC only on basis of amount paid by him.
For example, normal sale price of a product is Rs 1,00,000. However, in view of market conditions, the dealer is able to sale the product only at Rs 75,000. In that case, the supplier (manufacturer/wholesaler) may give additional discount of (say) Rs 20,000 to the dealer. In that case, the dealer is liable to pay GST on Rs 95,000 [Rs 75,000 sale price plus Rs 20,000 additional consideration received in form of additional discount]. However, the customer will be eligible to avail ITC (if he is otherwise eligible) on
Rs. 75,000 only (as confirmed in para 4 of CBI&C circular No. 105/24/2019GST dated 28-6-2019).
Practically, how this can be achieved?
The customer is not even aware of the additional discount given by manufacturer/wholesaler to the dealer. He is aware of only net price to be charged to him.
If the customer is not registered under GST or is not in position to avail ITC, tax invoice may be issued for Rs 95,000 with GST and simultaneously financial credit note without GST for difference [Rs 20,000 plus GST on Rs 20,000 - as customer will pay GST only on Rs 75,000] may be issued to customer.
If the customer is registered under GST and is in position to avail ITC, tax invoice may be issued on him for Rs 75,000 and simultaneously another tax invoice may be issued on supplier (manufacturer/wholesaler) for Rs 20,000 with GST.
4.3-4 Quantity Discount permissible
In some cases, quantity discount is given by way of additional supply e.g. 11 pieces are supplied for price of 10.
In Golden Tobacco Ltd., In re [2019] 106 taxmann.com 409 (AAR - Maharashtra), applicant, who was sellers of cigarettes, intended to offer extra quantity of cigarettes (quantity discount) in addition to normal quantity against same consideration as a taxable supply to its distributors. They intended to supply additional packs of cigarettes along with regular supply of cigarettes without receiving any additional consideration for additional packs. It was (indeed rightly) held that such extra packs of cigarettes wouldn’t be exigible to GST.
4.3-5 No unjust enrichment if discount amount returned to buyer by cheque or credit note
If credit note is issued after supply, its input tax credit can be adjusted in Electronic Credit Ledger.
Even otherwise, there is ample case law that if the discount amount is refunded by supplier by way of credit note or cheque, there is no unjust enrichment and refund is admissible.
Reversal of ITC not required if Post sale discounts offered - Para D of CBI&C circular No. 92/11/2019-GST dated 7-3-2019 clearly states that the recipient of goods or services can avail entire ITC of GST charged by supplier in his original invoice in case of post sales discount - view reiterated in para 5 of CBI&C circular No. 105/24/2019-GST dated 28-6-2019.
Para 4.3
In a contrary view, in MRF Ltd., In re [2019] 73 GST 485 = 103 taxmann.com 278 (AAR-TN), applicant was getting post sale, post supply and post issue of invoices discount. Thus, the appellant was making net payment to supplier after deducting such discount. It was held that the appellant is required to reverse the ITC on such discount as full payment is not made to supplier.
4.4 Meaning of ‘consideration’
‘Consideration’ in relation to the supply of goods or services or both to any person, includes
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the said person or by any other person; but shall not include any subsidy given by Central or State Government.
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person, but shall not include any subsidy given by Central or State Government - section 2(31) of CGST Act.
Clause (b) would cover service of ‘refraining from act or tolerating an act or situation’.
4.4-1 Deposit is not consideration
A deposit, whether refundable or not, given in respect of the supply of goods or services or both shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supplyproviso to section 2(31) of CGST Act.
Normally, term ‘deposit’ is used when amount is refundable and term ‘advance’ is used when amount is adjustable (and not refundable). However, definition of ‘consideration’ envisages non-refundable deposit also.
GST is payable when advance is received. Hence, instead of receiving advance from customer, it is advisable to receive ‘deposit’. In that case, GST will be payable only when such deposit is adjusted against supply. However, this will raise issues under Companies Act, 2013. No GST on interest free refundable deposits received - In Maharashtra E-Square Leisure (P) Ltd. In re (2019) 73 GST 547 = 104 taxmann.com 258 (AAR - Maharashtra), it has been held that no GST is payable on refundable interest-free security deposit received by lessor. However, if, at the time of return of deposit, some amount is withheld, GST will be payable on such amount.
However, this will raise issues under Companies Act, 2013.
GST on notional interest on interest free refundable deposit not includible - In Midcon Polymers (P.) Ltd., In re [2021] 123 taxmann.com 408 (AAAR-Karnataka), it has been held that notional interest on security deposit is not required to be added in taxable value of services, as there is no connection between interest paid by third person (bank) and the renting service supplied by owner of building.
[really no provision in law to consider ‘notional income’, except in case of related party transactions].
In a contrary view, in Rajkot Nagarik Sahakari Bank Ltd. In re (2019) 76 GST 397 = 108 taxmann.com 515 (AAR-Gujarat), it was held that GST is payable on notional interest on interest free refundable deposit.
4.4-2 Charity (Dharamada) is not includible in value
In D J Malpani v. CCE [2019] 106 taxmann.com 29 = 366 ELT 385 (SC 3 member bench), assessee was collecting dharamda (charity) separately in invoice. It was voluntary on purchasers. The charity amount collected was not taken as income of assessee. It was observed that dharmada is means ‘an alms or a gift in charity’. Dharmada is not includible in assessable value, as it is not consideration for sale [the decision in case of Central Excise but principle should apply under GST also].
4.4-3 Free supplies made by recipient to supplier
GST is on ‘supply of goods and services’. The scope of ‘supply’ is a contract between supplier and recipient. Only those elements of cost will form ‘value’ which are in the contract of scope of supply.
The tax is on ‘supply’ and not on ‘goods or services’ as such. Thus, only what is supplied should be added to ‘value’.
Further, addition of these amounts to ‘value’ is against the concept of Input Tax Credit principle, as some costs will be added to ‘value’ on which the supplier will not be able to avail any input tax credit.
This will also be against the second proviso to section 16(2) of CGST Act, which requires that value of goods and tax thereon must be paid within 180 days, otherwise proportionate Input Tax Credit is required to be reversed.
Thus, adding value of free supply items is not in harmony with section 16 of CGST Act at all.
It is well settled that law has to be interpreted as whole and not piece meal, as per rule of Harmonious construction, as discussed below.
