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Treatment of secondary or post-sales discounts under GST
Circular No. 92/11/2019-GST dated 7th March, 2019 was issued providing clarification on
various doubts related to treatment of sales promotion schemes under GST. Post issuance of the said
Circular various representations have been received from the trade and industry seeking clarifications in
respect of tax treatment in cases of secondary discounts or post sales discount. The matter has been
examined in order to ensure uniformity in the implementation of the law across the field formations,
the Board, in exercise of its powers conferred under section 168(1) of the Central Goods and Services
Tax Act, 2017 (hereinafter referred to as “the CGST Act”) clarifies the issues in succeeding paragraphs.
Nature of Discount-
For the purpose of value of supply, post sales discounts are governed by the provisions of clause
(b) of sub-section (3) of section 15 of the CGST Act. It is crucial to examine the true nature of discount
given by the manufacturer or wholesaler, etc. (hereinafter referred to as “the supplier of goods”) to the
It would be important to examine whether the additional discount is given by the supplier of
goods in lieu of consideration for any additional activity / promotional campaign to be undertaken by
i) Discount without any Obligation-
It is clarified that if the post-sale discount is given by the supplier of goods to the dealer without
any further obligation or action required at the dealer’s end, then the post sales discount given by the
said supplier will be related to the original supply of goods and it would not be included in the value of
supply, in the hands of supplier of goods, subject to the fulfilment of provisions of sub-section (3) of
section 15 of the CGST Act.
ii) Discount for doing some specific act-
However, if the additional discount given by the supplier of goods to the dealer is the post-sale
incentive requiring the dealer to do some act like undertaking special sales drive, advertisement
campaign, exhibition etc., then such transaction would be a separate transaction and the additional
discount will be the consideration for undertaking such activity and therefore would be in relation to
supply of service by dealer to the supplier of goods. The dealer, being supplier of services, would be
required to charge applicable GST on the value of such additional discount and the supplier of goods,
being recipient of services, will be eligible to claim input tax credit (hereinafter referred to as the “ITC”)
of the GST so charged by the dealer.
iii) Discount for augmenting sales-
It is further clarified that if the additional discount is given by the supplier of goods to the dealer
to offer a special reduced price by the dealer to the customer to augment the sales volume, then such
additional discount would represent the consideration flowing from the supplier of goods to the dealer
for the supply made by dealer to the customer. This additional discount as consideration, payable by any
person (supplier of goods in this case) would be liable to be added to the consideration payable by the
customer, for the purpose of arriving value of supply, in the hands of the dealer, under section 15 of the
CGST Act. The customer, if registered, would be eligible to claim ITC of the tax charged by the dealer
only to the extent of the tax paid by the said customer to the dealer in view of second proviso to sub-
section (2) of section 16 of the CGST Act.
There may be cases where post-sales discount granted by the supplier of goods is not
permitted to be excluded from the value of supply in the hands of the said supplier not being in
accordance with the provisions contained in sub-section (3) of section 15 of CGST Act. It has already
been clarified vide Circular No. 92/11/2019-GST dated 7th March, 2019 that the supplier of goods
can issue financial / commercial credit notes in such cases but he will not be eligible to reduce his
original tax liability.
Doubts have been raised as to whether the dealer will be eligible to take ITC of the original
amount of tax paid by the supplier of goods or only to the extent of tax payable on value net of
amount for which such financial / commercial credit notes have been received by him.
It is clarified that the dealer will not be required to reverse ITC attributable to the tax
already paid on such post-sale discount received by him through issuance of financial / commercial
credit notes by the supplier of goods in view of the provisions contained in second proviso to sub-
rule (1) of rule 37 of the CGST Rules read with second proviso to sub-section (2) of section 16 of the
CGST Act as long as the dealer pays the value of the supply as reduced after adjusting the amount of
post-sale discount in terms of financial / commercial credit notes received by him from the supplier
of goods plus the amount of original tax charged by the supplier.