Indirect Tax Alert

As recommended by the GST Council in its 56^th meeting, the Central Board of Indirect Taxes and Customs (CBIC) has issued the following clarifications stipulating the GST implications on the treatment of secondary or post-sale discounts:

• Input tax credit (ITC) eligibility on discounted payments by recipient, considering financial commercial credit notes issued by supplier:
  • Vide Circular No. 92/11/2019-GST dated 7 March 2019, it was clarified that in cases where the supplier of goods issues financial/commercial credit notes, the supplier will not be eligible to reduce their original tax liability. Hence, the tax charged from the recipient would not be reduced.
  • The CBIC has clarified that the recipient will not be required to reverse ITC attributed to the discount provided on such financial/commercial credit notes, as there is no reduction in the original transaction value of goods.

• Treatment of post-sale discounts offered by manufacturer to dealer on valuation of goods supplied by dealer to the end customer:
  • The GST implications on such post-sale discounts would depend on whether there is an agreement between the manufacturer and the end customer for any supply at a discounted sale price.
  • In the absence of such an agreement, there are two independent sale transactions – one from the manufacturer to the dealer and the other from the dealer to the end customer. Thus, the dealer operates on a principal-to-principal basis, and the discounts are simply given for competitive pricing to push sales and reduce the sale price of goods and are not linked to any independent activity undertaken for the manufacturer. Hence, such post-sale discounts cannot be included in the value of goods supplied by the dealer to the end customer.
  • In cases where the manufacturer has entered into an agreement with the end customer to supply goods at a discounted rate, the manufacturer may issue financial/ commercial credit notes to the dealer, enabling the dealer to supply goods at the agreed discounted rate to the end customer. Such post-sale discounts are an inducement towards the supply of goods by the dealer to the end customer and should be included in the consideration for the supply of goods by the dealer to the end customer.

• Treatment of post-sale discount as consideration for activities performed to promote sales:
  • Generally, upon receipt of post-sale discounts, the dealers engage in promotional activities to boost sales. These activities enhance the sale of goods and, consequently, the revenue of dealers. Hence, discounts offered by manufacturers merely reduce the sale price of goods and are not linked to any independent service rendered to the manufacturer. Accordingly, such post-sale discounts given by manufacturers to dealers shall not be treated as consideration for a separate transaction of supply of service.
  • However, GST would be leviable if a dealer undertakes specific sales promotional activities such as advertising, campaigns, co-branding, customisation services, special sales drives, exhibition arrangements, customer support services, etc., in terms of specific mention for provision and specific consideration for such services in the agreement.

BDO INDIA COMMENTS
The treatment of post-sale discounts given by manufacturers has been a contentious issue since the introduction of GST, where the revenue was seeking to include them in the sales made by the dealers. It has been a consistent stand of the industry that such discounts are merely provided for pushing sales, and it is indeed welcome to see the GST Council accepting the view of the industry on this important issue.

Coming just before the festive season, when manufacturers and brand owners typically roll out major discount campaigns and in conjunction with significant GST rate cuts announced by the Government, the circular has been issued with impeccable timing and gives certainty in tax position to industry, encouraging it to roll out the discount schemes. The manufacturers and brand owners should immediately assess the implications of this circular on their post-sale discount strategy.

[Circular No. 251/08/2025-GST dated 12 September 2025]