Valuation of Supply under GST

What happens when you give discounts?

Discounts given before or at the time of supply will be allowed as deduction from transaction value. Such discounts must be clearly mentioned on the invoice.

Discounts given after supply will be allowed only if-

It is mentioned in the agreement entered into before sale AND
input tax credit proportionate to the discount has been reversed by the recipient of the supply AND
It can be clearly tracked to relevant tax invoice.

Example 1
Galaxy Ltd is a wholesaler selling tools like drills, polishers, spades etc. Galaxy Ltd now sells the power drill to a trader TDR for Rs. 4,000 offering a 1% discount.
Galaxy Ltd incurs Rs. 150 packing charges
To encourage prompt payment, Galaxy Ltd offers additional 0.5% discount if WHL pays within 7 days.

Power Drill                 Rs. 4,000

Packing charges.        Rs.    150

Discount @1% (on sale value) Rs.(40)

Subtotal.                      Rs. 4,110

Add: CGST @9%.        Rs.    370

Add: SGST @9%.         Rs.    370

Total.                             Rs. 4,850

Discount of 0.5% is not deducted in the invoice because it will be given at the time of payment. However, this discount was known at the time of supply, and can be linked to this specific invoice, the discount amount can be reduced from the transaction value.
For this, Galaxy Ltd will issue a credit note to TDR for Rs 20 (0.5% of Rs 4,000 = Rs 20+ GST@ 18% on Rs 20 = Rs 3.60), and this must be linked to the relevant tax invoice.
Here, discount has been given after supply. But it was agreed upon at the time of supply and can be traced to the relevant invoice. So it will be allowed to be deducted from the transaction value.
When discount is given AFTER supply AND it is NOT KNOWN at the time of supply.

Example 2
Galaxy Ltd is facing serious liquidity problems and requests GGL to pay within 2 days. It offers additional 1% discount. GGL agrees and pays. This discount was not known at the time of supply, and so it cannot be claimed as a deduction from the transaction value for GST calculation. So the invoice will be same as above.
To summarize discounts-
Discount is given-
Allowed as deduction from transaction value?

On or before time of supply and recorded in tax invoice

After supply but it was known before/at time of supply and can be traced to relevant invoice

Given after supply but it was NOT agreed upon before/at time of supply (whether or not traceable to relevant invoice)

Valuation of Supply under GST
What happens when you receive Advances?

As per the clarification issued by the GST Council on 3rd June 2017, following refinements have emerged;

If invoice is raised in the same tax period in which advance received, it is clarified that there is no need to report the advance separately.
Rate wise details of advance received and invoice not issued to be disclosed
Advances received in the earlier period and adjusted against invoices issued in the current period to be disclosed Now, this has reduced the complexity certainly since GST need not be reckoned at the time of advance receipt..

The tracking of advances would be confined only to the following;

– Advances received during the tax period and not billed during the same tax period
– Advances received and knocked off in different tax periods

Following are the tax compliances;

1. Receipt vouchers have to be generated
2. Payment of GST on the advances received based on the following options;
– Option A: HSN based GST rates along with “Place of Supply”
-Option B : Where HSN and place of supply is not determinable, IGST @ 18% (This might be relevant still where “PoS” is not known)
3.Uploading of returns on the above logic for “outward supply”

Commercial aspects on the Advance treatment:

– Advance received can be treated as including GST or entity which is a supplier can bear the cash flow on account of GST by treating the amount as 100% Advance. But, such intention has to be documented unambiguously.
Technical aspect on the Advance:

– Order to invoice matching would be one of the ideal method of tracking. This would result in no carry forward or partial liability issues. However, this may require a discipline of Confirmed order and remitting the amount exactly required for billing.
– Escrow kind of account where fund lying in such account is appropriated exactly a moment after the billing can be explored
– Unique identify for each transaction of advance

Contributed by – CA Hirav Patel


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