Suppliers issuing post-sale discounts via credit notes under GST must obtain an undertaking or a CA certificate from the client, confirming that the Input Tax Credit (ITC) availed on the discount value has been reversed, according to the CBIC.

Currently, there is no mechanism to track whether ITC on such discounts has been reversed. Until a functionality is available on the common portal for suppliers and tax officers to verify the reversal, suppliers may procure a certificate from the recipient of the supply. This certificate, issued by a Chartered Accountant (CA) or Cost Accountant (CMA), must certify that the recipient has made the necessary proportionate reversal of ITC in respect of the credit note issued by the supplier.

For transactions where the total tax (CGST, SGST, IGST, and compensation cess, if any) involved in the discount given by the supplier does not exceed Rs 5 lakh in a financial year, an undertaking from the recipient is required instead of a CA/CMA certificate.

A tax expert noted that the circular has a retrospective effect, impacting all demands on this issue since 2017. Taxpayers engaged in litigation on this matter can leverage this clarification for relief.

“Going forward, this will benefit the industry by clarifying the process for issuing credit notes. The circular mandates obtaining CA/CMA certifications or self-certifications for smaller transactions, increasing the documentation burden and necessitating updates to accounting systems. While this demands meticulous compliance, it promises long-term benefits in terms of predictable and streamlined GST operations,” he said.

Another tax expert mentioned that these documents, with a unique ID number, serve as proof for audits and ensure consistent application of GST rules on post-sale discounts. This would help resolve disputes between the tax department and businesses.

In a separate circular, the Central Board of Indirect Taxes and Customs (CBIC) clarified that ITC is available to insurance companies for motor vehicle repair expenses incurred under the reimbursement mode of claim settlement.

“In cases where the garage issues two separate invoices for the repair services, one to the insurance company for the approved claim cost and another to the customer for the repair service amount exceeding the approved claim cost, ITC may be available to the insurance company on the invoice issued to the insurance company, subject to reimbursement of the said amount by the insurance company to the customer,” it stated.

However, if the invoice for the full repair service amount is issued to the insurance company, while the insurance company reimburses the insured only for the approved claim cost, then ITC may be available to the insurance company only to the extent of the reimbursement of the approved claim cost to the insured, not on the full invoice value.