The Madras High Court has invalidated the tax demands imposed on post-sale discounts received through financial credit notes, ruling that the receipt of a discount is legally untenable.
Justice Senthilkumar Ramamoorthy’s bench noted that the assessing officer’s conclusion—that a taxable person is providing a service to the supplier by leveraging a discount to boost the supplier’s sales volume—is deemed incorrect on its face and runs counter to the basic principles of GST law.
The petitioner or assessee received a show cause notice asking them to address certain defects. The petitioner responded to the notice, which concerns the reversal of input tax credit related to credit notes issued by the supplier.
Sub-section (3) of Section 15 of the relevant GST statutes stipulates that the value of supply can be reduced due to a discount if the discount is appropriately documented in the invoice issued for the supply or if it is established under an agreement made either before or at the time of the supply, even if the supply occurs after the agreement is made.
The assessee argued that according to sub-section (3) of Section 15 of the applicable GST statutes, the value of supply should exclude a discount only if the conditions specified in clauses (a) or (b) of sub-section (3) are met. They asserted that the present case does not fall within the purview of sub-section (3).
As a result, the assessee contends that the credit notes issued by the supplier were financial credit notes. Therefore, the recipient or taxpayer is not obligated to reverse input tax credit corresponding to the value of these credit notes.
The assessee argued that the discount offered by the supplier was incorrectly interpreted as a service provided by the purchaser to the supplier. They called for the order to be reconsidered or reviewed.
The court held that the order is set aside only insofar as a defect relating to the reversal of input tax credit for the value of credit notes issued by the supplier is concerned.
Counsel For Petitioner: G.Natarajan
Counsel For Respondent: C.Harsha Raj
Case Title: Tvl. Shivam Steels Versus Assistant Commissioner (ST)(FAC)
Case No.: W.P.No.15335 of 2024 and W.M.P.Nos.16659 & 16661 of 2024
