Summary: The content traces the evolution of GST treatment of secondary and post-sale discounts under Section 15 of the CGST Act, 2017. It explains that while discounts given before or at the time of supply and recorded in the tax invoice are excluded from the value of supply under Section 15(3)(a), post-supply discounts were earlier excluded under Section 15(3)(b) only if they were agreed before or at the time of supply, linked to relevant invoices, and accompanied by reversal of attributable input tax credit by the recipient. It discusses Circular No. 92/11/2019-GST recognising commercial credit notes without GST liability reduction, Circular No. 105/24/2019-GST and its subsequent withdrawal through Circular No. 112/31/2019-GST, Circular No. 212/06/2024-GST prescribing evidence of ITC reversal, Circular No. 251/08/2025-GST clarifying treatment of commercial credit notes, dealer discounts and promotional services, and Circular No. 253/10/2025-GST withdrawing the evidentiary requirements introduced in 2024. The Finance Act, 2026 amended Section 15(3)(b) by removing the earlier requirements of prior agreement and invoice linkage, providing that post-supply discounts are excluded where the supplier issues a credit note and the recipient reverses the attributable input tax credit in accordance with Section 34.
Introduction
The concept of value of supply lies at the heart of the Goods and Services Tax regime. Since GST is fundamentally a transaction-value-based tax, determination of the correct taxable value assumes critical importance. One of the most contentious aspects of valuation under GST has been the treatment of secondary discounts or post-sale discounts.
Businesses across industries routinely offer discounts after completion of supply for a variety of commercial reasons such as achieving sales targets, pushing inventory, responding to market competition, rewarding dealer performance, liquidating stock or maintaining long-term business relationships. While such discounts are a commercial reality, their GST implications have remained a subject matter of continuous debate since the introduction of GST in 2017. Over the years, the Government has issued multiple circulars, withdrawn certain clarifications, prescribed evidentiary mechanisms, and ultimately amended the law itself through the Finance Act, 2026. The evolution of law reflects an attempt to strike a balance between commercial practices and statutory compliance. This article provides a complete legal analysis of secondary and post-sale discounts under GST in a chronological and structured manner.
Understanding Discounts under Section 15 of the CGST Act
Section 15 of the CGST Act, 2017 lays down the principles for determining the value of supply. Further Sub-section (3) specifically deals with discounts and recognizes two categories of discounts:
1. Discounts Given Before or At the Time of Supply
Section 15(3)(a) provides that any discount given before or at the time of supply shall not be included in the value of supply provided such discount is duly recorded in the tax invoice.
Examples include:
- Trade discounts
- Cash discounts reflected on invoice
- Quantity discounts known upfront
- Promotional discounts reflected in tax invoice
Since such discounts form part of the original transaction structure, there is no dispute regarding their exclusion from taxable value.
2. Discounts Given After Supply
The second category covers discounts offered after the supply has already been completed. These are commonly referred to as Secondary Discounts, Post-Sale Discounts, Turnover Discounts, Volume Rebates, Performance Incentives, Year-End Discounts and Market Support Discounts.
Unlike primary discounts, these discounts arise after the original tax invoice has already been issued and GST has already been discharged. It is this category that gave rise to extensive litigation and interpretational disputes under GST.
Original Framework of Section 15(3)(b)
Prior to the amendment introduced by the Finance Act, 2026, Section 15(3)(b) permitted exclusion of post-supply discounts from taxable value only when the following conditions were satisfied:
First Condition
The discount should be:
established in terms of an agreement entered into at or before the time of supply; and specifically linked to relevant invoices.
Second Condition
The recipient of supply should reverse the input tax credit attributable to such discount.
Only upon satisfaction of both conditions could the supplier issue a tax credit note under Section 34 and correspondingly reduce its GST liability. Further, the practical problem was that many business discounts were neither pre-agreed nor invoice-linked. Consequently, genuine business discounts often failed to qualify under Section 15(3)(b).
Circular No. 92/11/2019-GST: Birth of the Commercial Credit Note Concept
The first significant clarification came through Circular No. 92/11/2019-GST dated 07 March 2019. The circular examined a situation where goods were initially supplied at one price and later re-priced downward.
For instance, M/s A supplied biscuits to M/s B at ₹10 per packet and subsequently decided to reduce the effective price to ₹9 per packet by issuing a credit note of ₹1 per packet. The question was whether such a credit note could be issued even when Section 15(3)(b)
conditions were not fulfilled.
CBIC clarified that:
- Suppliers may issue financial or commercial credit notes even if conditions of Section 15(3)(b) are not satisfied.
Such credit notes are merely commercial adjustments between contracting parties.
The supplier cannot reduce output GST liability.
This clarification created a distinction between:
Tax Credit Notes
Issued under Section 34 where statutory conditions are satisfied and GST liability is reduced.
Commercial Credit Notes
Issued for commercial purposes where statutory conditions are not satisfied and GST liability remains unchanged. This distinction continues to remain central to GST treatment of post-sale discounts.
Circular No. 105/24/2019-GST: Attempt to Clarify Secondary Discounts
To address industry concerns regarding post-sale incentives, CBIC issued Circular No. 105/24/2019-GST dated 28 June 2019. The circular sought to classify post-sale discounts into different scenarios.
Scenario 1: Pure Post-Sale Discount
Where a manufacturer granted additional discounts to dealers without requiring any obligation or activity from the dealer, the circular treated such discounts as relating to the original supply. Accordingly, their GST treatment was to be examined under Section 15(3)(b).
Scenario 2: Discounts Linked to Promotional Activities
The circular further stated that where the dealer was required to undertake activities such as:
Advertisement campaigns
- Exhibitions
- Sales drives
- Promotional events
the discount would become consideration for a separate supply of service made by the dealer to the manufacturer. Consequently, dealer would be liable to charge GST and Manufacturer would be entitled to ITC of such GST.
Scenario 3: Discount Passed to End Customer
The most controversial portion of the circular was paragraph 4. CBIC attempted to clarify that where the manufacturer reimbursed the dealer for supplying goods to customers at a reduced price, such reimbursement could form part of the consideration for the dealer’s outward supply and consequently become includible in value of supply.
This interpretation was heavily criticised by industry because it effectively increased GST incidence despite the customer ultimately receiving goods at a lower price.
Withdrawal of Circular No. 105/24/2019
The circular generated widespread disputes and practical implementation difficulties. Industry bodies raised concerns regarding:
Double taxation
- Artificial supply classification
- Conflict with commercial realities
- Increased litigation
Recognizing these concerns, CBIC issued Circular No. 112/31/2019-GST withdrawing Circular No. 105/24/2019-GST ab initio. The withdrawal effectively erased the circular from the legal framework and left a void that continued for several years.
Circular No. 212/06/2024-GST: Compliance Burden Increases
Even where conditions of Section 15(3)(b) were fulfilled, suppliers faced a practical difficulty. The law required reversal of ITC by the recipient. However, suppliers had no mechanism to establish whether such reversal had actually been carried out.
To address this issue, CBIC issued Circular No. 212/06/2024-GST prescribing a mechanism for furnishing evidence of recipient’s ITC reversal.
The circular provided that suppliers may obtain:
- CA certification,
- CMA certification, or
- Recipient declarations in specified cases,
confirming that proportionate ITC reversal had been undertaken. While the objective was to create certainty, the industry viewed the requirement as excessively burdensome because suppliers had no control over recipient compliance.
Circular No. 251/08/2025-GST: The Landmark Clarification
On 12 September 2025, CBIC issued Circular No. 251/08/2025-GST, which today represents the most significant administrative clarification on secondary discounts. The circular addressed three fundamental disputes.
Issue 1: ITC Impact of Commercial Credit Notes
CBIC reaffirmed the position earlier emerging from Circular 92/11/2019. It clarified that where a supplier issues a financial or commercial credit note:
- Transaction value remains unchanged.
- Supplier cannot reduce GST liability.
- Tax charged originally remains unchanged.
Accordingly, the recipient is not required to reverse ITC attributable to such commercial credit note. This clarification brought enormous relief to industry.
Issue 2: Whether Manufacturer’s Discount is Consideration for Dealer’s Supply?
CBIC examined whether discounts provided by manufacturers to dealers could be considered inducement for dealer’s supply to end customers.
The circular observed that where:
- There is no agreement between manufacturer and customer;
- Dealer purchases goods on principal-to-principal basis;
- Property in goods passes to dealer;
the dealer becomes owner of goods and undertakes independent supplies to customers. Thus, the post-sale discount merely reduces sale price and cannot be regarded as consideration for dealer’s outward supply. This clarification effectively reversed the controversial thinking previously seen in Circular 105/24/2019.
Exception: Manufacturer-Customer Agreements
The circular nevertheless carved out an important exception. Where the manufacturer has an independent agreement with the customer to supply goods at a specified discounted price and the dealer merely facilitates such discounted sale, the financial support provided by the manufacturer may constitute an inducement for supply and form part of consideration for the customer.
Issue 3: Whether Discounts Constitute Consideration for Services?
The circular also dealt with dealer incentives and promotional schemes. CBIC clarified that when dealers undertake efforts to increase their own sales, such activities primarily benefit the dealers themselves because they own the inventory being sold. Therefore, post sale discounts linked to such general efforts do not amount to consideration for services rendered to manufacturers. However, GST would apply where the dealer undertakes specifically contracted services such as Advertising campaigns, Co-branding arrangements, Customized promotions, Exhibition services, Customer support services, Sales promotion drives and separate consideration is identifiable for such services.
Circular No. 253/10/2025-GST: Removal of Evidentiary Burden
Recognizing industry concerns, CBIC revisited the compliance requirements introduced in 2024. Through Circular No. 253/10/2025-GST dated 01 October 2025, CBIC withdrew Circular No. 212/06/2024-GST in its entirety.
Finance Act, 2026: A Historic Legislative Shift Despite various circulars, the root cause of litigation remained the wording of Section 15(3)(b) itself. The requirement of a prior agreement and invoice linkage excluded numerous genuine commercial discounts from GST adjustment.
The legislature finally intervened through the Finance Act, 2026.The amended provision now reads substantially as follows:
“Post-supply discount shall be excluded where the supplier issues a credit note and the recipient reverses the input tax credit attributable to such discount in accordance with Section 34”.
The earlier requirements stand removed.
Impact of the 2026 Amendment
The amendment is arguably one of the most significant GST valuation reforms since 2017. The revised provision aligns GST law with actual business practices and facilitates issuance of tax credit notes in respect of Year-end discounts, Turnover rebates, Market support incentives, Volume discounts, Loyalty schemes, Target achievement incentives, Sales performance schemes without the rigid requirement of establishing that such discounts existed at the time of original supply. The amendment substantially reduces litigation and provides much-needed certainty to trade and industry.
Conclusion
The law relating to secondary and post-sale discounts has undergone a roller-coaster ride since the inception of GST. The journey has moved from the restrictive interpretation of Section 15(3)(b), through the recognition of commercial credit notes in Circular 92/11/2019, the controversial but ultimately withdrawn Circular 105/24/2019, the compliance-heavy Circular 212/06/2024, the landmark clarifications in Circular 251/08/2025, and the withdrawal of procedural burdens through Circular 253/10/2025, culminating in the taxpayer-friendly amendment brought by the Finance Act, 2026. Today, GST law finally recognizes that post-sale discounts are a legitimate commercial phenomenon. The combined effect of Circular 251/08/2025 and the Finance Act, 2026 has shifted the focus from procedural technicalities to substantive commercial reality, thereby bringing certainty, reducing disputes and creating a more business-friendly valuation framework under GST.
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