Inline with recommendations of 56th GST Council meeting, the CBIC has issue disscued a new circular to clarify the issues regarding the tax treatment of secondary or post-sale discounts provided under the Goods and Services Tax(GST).
This clarification aims to ensure consistent implementation of the law across different field formations. There has been an ambiguity regarding whether GST Output Liability is to be reduced through discounts and corresponding reversal of ITC with respect to same by the recipient.
Post-sale discounts are provided post completion of sales. For example, a manufacturer provides a performance based discount to the dealers, cash discount etc. Such discounts are often given through financial or commercial credit notes.
In this regard, The CBIC has issued251/08/2025-GST dated 12th September, 2025 addressing various doubts related to treatment of secondary or post-sale discounts under GST.
This article carries out the detail discussion of clarification issued:
➢ As per Section 16 of the CGST Act, every registered person is entitled to claim ITC with on supply of goods which are used in the course of business or furtherance of business;
➢ An earlier circular (No. 92/11/2019-GST, dated March 7, 2019)clarified that the supplier of goods can issue financial/ commercial credit notes. However, he shall not be entitled to reduce his original tax liability. Since, transaction value is not reduced on account of issuance of financial/commercial credit note, then the tax charged from the recipient shall also not get reduced.
➢ Therefore, the recipient is not required to reverse ITC attributed to the discount provided on the basis of financial/commercial Credit notes as there is no reduction in the original transaction value of the supply and accordingly the corresponding tax liability would also not get reduced.
➢ Example:
○ Original Sales Invoice value issued by the Manufacturer: INR 100 + INR 18 IGST
○ Post sales discount given of INR 10 through CN;
○ The dealer pays only ₹90.However, GST payment is made of complete amount of INR 18/-.
○ Therefore, the dealer shall be entitled to claim ITC of INR 18/-.
In some case, GST officer considers the discount provided by manufacturer to the dealer as "consideration" for the goods supplied by the dealer to the end user. In this context CBIC has clarified that:
● As per Section 2(31) of the CGST Act, “Consideration” includes monetary value of any act for the inducement of the supply of goods or services, whether by the recipient or by any other person.
○ one from the manufacturer to the dealer; and
○ Second from the dealer to the end customer.
● In this scenario, the essence of the matter is contract of sale. The sale is completed on the transfer of title to the goods to the buyer. Once this happens, the buyer becomes the owner of the goods, and the seller has no vestige of the title or claims therein.
● The dealer takes the ownership of the goods from the manufacturer and subsequently sells them to the end customer. The transaction between the manufacturers to the dealer operates on a principal-to-principal basis.
● These discounts are simply given for competitive pricing to push sales and merely reduce the sale price of the goods and are not linked to any independent activity rendered to the manufacturer.
● Therefore, it is clarified that such a discount cannot be included in consideration as the monetary value of the inducement of further supply of these goods.
● However, where the manufacturer has agreement with an end customer to supply goods at a discounted price, the manufacturer may issue commercial or financial credit notes to the dealer, enabling such dealer to provide the goods at the agreed discounted rate to the end consumer.
● Therefore, such a post sale discount should be included in the overall consideration as it is an inducement towards the supply of goods by the dealer to the end customer.
In this matter, CBIC has clarified that:
● When dealers receive such post-sale discounts, they may engage in promotional activities to boost sales.
● However, these activities enhances the sale of goods which are owned by the dealer themselves, there by increasing their own revenue.
● Therefore, discount merely reduces the sale price of the goods and is not linked to any independent service rendered to the manufacturer. Therefore, such post-sale discounts shall not be treated as consideration for a separate transaction of supply of services.
● However, GST would beleviable where a dealer undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, or customer support services, etc.,
● Such services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply.
● The dealer is providing a distinct service to the supplier and the same shall be chargeable to GST.
Conclusion
Post sales discount is a key issue under litigation where the GST officer intends to reverse the ITC on account of non payment of such consideration. Such circular will make the taxability position clear. This circular has clarified that buyers are entitled to complete ITC in case of commercial credit notes, discounts aren’t considered as payments to the dealer unless specified in an agreement and promotions cost shall not be charged to GST unless agreed upon.
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