This circular issued by the Central Board of Indirect Taxes and Customs, GST Policy Wing in order to provide the mechanism for providing evidence of compliance of Section 15(3)(b)(ii) of the CGST Act, 2017 by the supplier. Section 15 of the CGST Act, 2017 provides the method for calculating the value of supply on which a tax is leviable under the Goods and Service Tax Act. Section 15(2) specifies the description of items or things the value of which needs to be included while calculating the ‘Value of Taxable Supply’. Section 15(3) specifies the things which is not be included or is required to be reduced from the value of taxable supply.

Under Section 15(3) of the CGST Act, 2017, there are two categories of discounts being provided to the recipient the value of which is not to be included in the value of taxable supply which are: - 

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been affected, if-

(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 on the basis of document issued by the supplier has been reversed by the recipient of the supply.

As per Section 15(3)(b)(ii), if any post supply discount is issued to the recipient, then the ITC on the same needs to be reversed by the recipient. Since, no such facility was available with the supplier or with tax officer to verify whether the ITC has been reversed by the recipient or not, a way out was provided by the Board through this circular which states that if the post supply discounts are provided by the recipient to the shall not be included in the value of tax supplies, only if it satisfies the conditions as mentioned in Section 15(3)(b) if the CGST Act, 2017 as mentioned above.

Accordingly, the supplier will issue the credit note in accordance with Section 34 of the CGST Act, 2017 after fulfilling the conditions as mentioned in the Section 15(3)(b) of the CGST Act, against which the recipient will reverse the ITC on the same.

Thus, this circular provides the mechanism for the supplier to obtain the certification from the recipient as an evidence of ITC reversal by recipient.

Limit of Tax amount under all the heads in a particular FY (IGST +CGST +SGST +Cess)	Certificate to be obtained from
Tax amount is up to Rs 5,00,000/-	Recipient’s Undertaking/Certificate confirming ITC reversal.
Tax amount is above Rs 5,00,000/-	CA/ CMA certifying the ITC reversal.

The certificate issued by the CA/CMA may include details such as the details of credit notes, the details of the relevant invoice number against which the said credit note has been issued, the amount of ITC reversal in respect of each of the said credit notes along with the details of the Form GST DRC-03/return/ any other relevant documents through which such reversal of ITC has been made by the recipient. The certificate by CA/CMA should have UDIN (Unique Document Identification Number).

The procurement of the certificate from the recipient or the CA/CMA can be made available till the time a functionality/facility is made available on the common portal to verify whether the ITC attributable to such discount offered through credit notes have been reversed by the recipient or not.

The supplier shall produce such certificates/undertakings before the tax officers, if required, during any proceedings such as scrutiny, audit, investigations, etc. Even for the past period, where ever any such evidence as per section 15(3)(b)(ii) of CGST Act in respect of credit note issued by the supplier for post-sale discounts is required to be produced by him to the tax authorities, the concerned taxpayer may procure and provide such certificates issued by CA/CMA or the undertakings/certificates issued by the recipients of supply, as the case may be, to the concerned investigating/audit/adjudicating authority as evidence of requisite reversal of input tax credit by his recipients.