[Opinion] Navigating Inconsistencies in the Treatment of Discounts under GST | Insights & Remedies

Rajni Mehla – [2023] 150 taxmann.com 456 (Article)

1. Section 65 of the Central Goods and Services Tax (CGST) Act, 2017 deals with the provisions related to the audit conducted by the GST department. During the course of such audits, observations are made by the department, which may require taxpayers to make adjustments or rectifications in their GST returns as well as to pay the taxes.

2. One recurring observation made by the GST department during audits pertains to the treatment of discounts received by taxpayers from their suppliers. Discounts can take various forms, such as cash discounts, trade discounts etc.

3. The issue at hand arises from the differing stands taken by the GST department in various instances. In some cases, taxpayers are asked to reverse the claimed ITC. However, in other cases, the GST department treats such discounts as consideration received for some supplies and demands GST on the same. This inconsistency has created confusion and uncertainty among taxpayers, as the treatment of discounts can significantly impact their tax liability and compliance requirements.

4. In this article, our main objective is to thoroughly examine the issue at hand, which pertains to the inconsistencies and challenges surrounding the treatment of discounts. We will explore the various judgments and circulars issued during the GST era or the previous taxation regime to derive potential remedies for the existing problems.

5. The underlying question here is what treatment should be given to these transactions under GST regulations. Should the recipient of these discounts/schemes reverse the Input Tax Credit (ITC)? Alternatively, should the recipient of these discounts/schemes discharge the GST liability?

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