New Delhi: The Central Board of Indirect Taxes and Customs (CBIC) has issued a detailed clarification on the Goods and Services Tax (GST) treatment of secondary or post-sale discounts, following multiple industry representations seeking clarity on their impact on tax liability and input tax credit (ITC).
According to the circular, when suppliers issue financial or commercial credit notes for discounts, recipients can continue to claim full ITC. This is because such credit notes do not alter the original transaction value or the GST charged on the supply, meaning businesses availing discounted goods are not required to reverse their ITC.
CBIC also clarified that post-sale discounts provided by manufacturers to dealers will not be treated as additional consideration for the dealer’s supply to end customers. These discounts are typically aimed at boosting sales through competitive pricing and reflect a principal-to-principal relationship between manufacturers and dealers.
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However, if a manufacturer has a direct agreement with an end customer to supply goods at a discounted price and issues credit notes to the dealer to support this arrangement, such discounts will be treated as part of the overall consideration. In such cases, the discount acts as an inducement to supply goods at a lower price.
The circular further noted that post-sale discounts to dealers should not be regarded as payment for promotional services. Dealers usually undertake promotional activities to benefit their own sales, so the discounts simply reduce the sale price of goods. But where dealers are explicitly contracted to perform services such as advertising, co-branding, or special sales campaigns, GST will apply separately on those services.
CBIC has directed tax authorities to widely publicise these clarifications to ensure uniform application of GST law across the country.
