The Additional Commissioner has dropped the notice demanding the Input Tax Credit (ITC) reversal worth Rs.2.30 crores and held that reversal ofITC is not required at the end of recipient if he pays value of supply as reduced after adjusting amount of post-sale discount in term of financial/Commercial credit notes received by him from supplier of goods plus amount of original tax charged by supplier.
The discount was passed on to the distributor by the manufacturer through the financial/commercial credit post-supply without the supplier/ manufacturer claiming the tax adjustment, and the demand was against the distributor for the reversal of ITC of approx Rs.2.30 crores.
During the course of Audit, it was observed that the taxpayer was receiving goods from M/s Mondelez India Foods Pvt Ltd. mainly, “Chocolate and Other Food Preparations Containing Cocoa-Cocoa Powder, Containing Added Sugar or Other Sweetening Matter” falling under Chapter 18 of CGST Tariff Act, 2017. As per instructions of the supplier, they were involved in trading of the said goods. The taxpayer used to sell the goods so received on a “Recommended Selling Price” which was decided by the taxpayer’s supplier i.e. M/ s Mondelez India Foods Pvt Ltd.
During the course of the audit, it was observed that the taxpayer had received discounts/incentives through Credit Notes, issued by the supplier, M/s. Mondelez India Foods Pvt Ltd. On scrutiny of the ledger and the Credit notes issued by the taxpayer’s supplier i.e., Ms Mondelez IndiaFoods Pvt Ltd,it was observed by the Auditors that no GST used to charge on the credit notes issued to the taxpayer but the said incentive and discounts had been just passed by M/s Mondelez India Foods Limited(supplier) to the taxpayer by way of CreditNotes D G on monthly basis, post supply.
Treatment of such discount enshrined under section 15(3)(b) of the CGST Act, 2017 stipulates that the taxpayer should reverse the input tax credit (ITC) which was attributed to the said supply against which post supply discount had been received. It was seen that the taxpayer had not reversed the ITC amounting to Rs. 2,28,09,590.
There was an agreement between the supplier Ms Mondelez India Foods Limited and the Noticee and the agreement mentioned that the taxpayer’s selling price to customers shall not exceed the supplier’s recommended selling price. Thus, the supplier of the goods had sole control over the pricing of goods during the period of impugn SCN. It was further observed that the taxpayer failed to fulfil the second condition of aforesaid Section 15(3)(b) of CGST Act, 2017 in as much as that the taxpayer had not reversed input tax credit as was attributable to the discount on the basis of a document issued by the supplier.
The auditors was of the view that the taxpayer had knowingly and wilfully not issued Debit Notes in respect of the credit notes received from the supplier, i.e. Ms MondelezIndia FoodsLimited thereby suppressing the material fact from the department with deliberate intent to evade payment of appropriate S T by not reversing the
ITC element involved to the tune of Rs. 2,28,09,590/- therein. The auditors emphasized that fi
the audit of the taxpayer had not been conducted, this would have gone unnoticed. Therefore,
the provisions of Section 74 of CGST Act, 2017 to be required to invoke.
The Additional Commissioner dropped the notice and held that the demand of ITC reversal from Noticee (recipient) is unwarranted and unsustainable as per law.
Case Details
Case No.: Order-In-Original No. 24/GST/CGST-NIM/ADC/AKS/2023-24
Date: 12.01.2024
