This article analyses the treatment of post-sale (secondary) discounts under GST, as clarified through various CBIC circulars issued up to September 2025, with particular focus on Circular 251 and the effects of declared withdrawal of Circular 212 to mitigate ambiguities.
Present Circular No. 251/08/2025-GST Dated: 12th September, 2025
1. A Circular No. 251/08/2025-GST Dated: 12th September, 2025 has been issued on the subject of post sale discount or called secondary discounts. It refers to circular no. 92 dated 07.03.2019, albeit cursorily.
2. It is important to discuss the first ever circular 92 dated 07.03.2019 and the withdrawn circular 105 dated 28.06.2019 in order to comprehend the present situation.
Pioneer Circular No. 92/11/2019-GST dated 07.03.2019
3. Circular 92 of 2019 has clarified many aspects, it says inter alia
Free samples are not supply
(i) Free samples supplied without consideration do not qualify as ‘supply’ under Section 7 of the CGST Act; hence, their value is not to be included in taxable supply. Consequently, ITC on such inputs is ineligible or if claimed, requires reversal
Additional Free goods’ cost is deemed inbuilt
(ii) Where some goods are supplied additionally with ordered goods, without additional value, (buy one get one free) it is deemed that value of free gifts is inbuilt in the originally ordered /supplied goods. Neither the value of such goods will be determined separately nor will it get added to the turnover of the taxpayer. This supply will be either composite or mixed for levy of tax. The supplier will not be liable to pay any additional tax and the ITC on inward supply will be available.
(iii) Volume discounts, through section 34 (with tax), colloquially called (More discount on more purchase over a period / quantity) as per an agreement between the supplier and the recipient, at the time or before the supply, will get reduced from the value of supply of supplier provided the recipient reverses the ITC.
Improvements recommended by GSTC
(iv) This provision will get amended as per 56thGSTC, albeit prospectively. After amendment in GST laws, the condition of prior agreement will be removed and the supplier will get reduction of value of supply if recipient reverses the ITC. A consequent amendment in section 34 shall also be made to align it with section 15(3)(b).
(v) Any Year end (any period) discount without any agreement between supplier and recipient given through GST compliant Credit Note will become eligible for reduction in value of supply and tax by following only one condition that the recipient reverses the ITC.
Coverage of circular 251 dated 12.09.2025
(vi) The present circular says that Year (any period) end discounts, without any agreement between supplier and recipient given through non-GST compliant Credit Notes i.e. Financial Credit Notes (FCN) will have no effect on the value of supply of the supplier and consequently no effect on ITC of recipient.
4. The circular number 105 dated 28.06.2019 was withdrawn in toto without assigning any reason but it stated as under:-
FCN vs. Sales Promotion Activity
(i) Where post sale discounts without tax through FCN i.e. beyond 15 (3) (b) are given by the supplier to its recipients which do not require the recipient to do any promotion activity etc., it would not be added to the value of supply of the recipient.
(ii) However, it had conversely added that if the recipient undertakes any sales promotion activity, this discount will become consideration in the hands of recipient and would be taxed. The supplier will get the ITC on such supply.
Harassment of Trade
(iii) Although Circular 105 dated 28.06.2019 was formally withdrawn by Circular 112 dated 03.10.2019, in practice many officers continued to treat post-sale discounts where recipient had done some sales promotion activities as an additional consideration from the supplier and levied tax on such FCN discount. This led to disputes where recipients had to prove absence of promotional services by direction of supplier.
Removal of ambiguity – Shifting of onus
(iv) Present circular 251 has built up on this edifice and has shifted the onus on the department. It states that once the recipient has become owner of goods any sales promotion activity is his own expenses. A Financial Credit note will not be directly added to the supply of recipient.
(v) However, the present circular also recognises the fact that any such sales promotion activity carried out by recipient at the instance of supplier will be added to the supply of recipient “only when such services are explicitly stated in the agreement with a clearly defined consideration”.
(vi) Under GST law a taxpayer files a self assessment return under section 59. Hence in order to prove the existence of “such agreement with a clearly defined consideration” is now incumbent upon the department.
5. Finally the Council has directed the withdrawal of the onerous circular 212 dated 26.06.2024 on discounts. This was dealing with section 15 (3) (b) which allowed discount amount to be reduced from the value of supply on fulfilment of three conditions as follows: –
(i) The agreement for such discount should have been made on or before the supply.
(ii) It must have linkage with specific invoices and
(iii) The recipient must have reversed the relevant ITC.
(iv) It did not refer to Credit Note issued under section 34 of the Act.
Credit Note and ITC Reversal – Sufficient Compliance
6. The 56thGSTC has recommended the amendment in section 15 (3) (b) such that first two conditions shall be omitted and the only requirement will be reversal of ITC by the recipient. The reversal of ITC by recipient will be linked to section 34 by amendment. However, the pain of this circular will subsist till the law is amended. It may take around 6 months for amendment in law.
7. Now, finally let us recapitulate and understand the essence of circular 251 which has three distinct clarifications. All the clarifications relate to post sale discount where there was no prior agreement between supplier and recipient and the discount is given through a FCN. These are as under: –
Standalone FCN; No effect on Tax Liability or ITC
(i) An FCN will not affect the tax liability of the supplier and consequently recipient is not required to reverse ITC. It is understood that an FCN can be issued any time and for any reason. Sales promotion activity and agreement with end customers are dealt with in next paragraphs.
Examples:
An FCN on next day of purchase; Not using CN
(a) A recipient, after the purchase of goods on the very next day asks for an FCN or gets an FCN from supplier for any reason like breakage of packing, delay in transportation or market condition. The supplier, instead of issuing Credit Note under section 34, issues an FCN. This FCN amount will neither reduce the tax liability of supplier nor would be added to the supply of recipient.
An FCN for any reason
(b) The recipient after purchase, within 6 months asks for or gets an FCN from the supplier for any reason like additional shop expenses. This FCN amount will neither reduce the tax liability of supplier nor would be added to the supply of recipient.
(c) The recipient after purchase, beyond 6 months asks for and gets an FCN from supplier for any reason like theft at his home (any financial problem). This FCN amount will neither reduce the tax liability of supplier nor would be added to the supply of recipient.
Pass through FCN for end customer; without agreement
(ii) Where a supplier (circular inadvertently uses the word manufacturer; the appropriate word would be supplier / Middleman) gives an FCN discount to his recipient who in turn passes it to end customer, it will not be a consideration of the middleman, to be added in his value of supply for the supplies made to end customer.
Pass through FCN for end customer; as per agreement
Exception to this is “where the manufacturer has some agreement with an end customer to supply goods at a discounted price”. The agreement should enable such dealer to provide the goods at the agreed discounted rate to the end consumer.
Examples: –
An FCN for old stock; Price drop
(a) A stockist of laptops urges his supplier to give him discount so that he may sell the laptops at a discounted price and gets such discount by an FCN. These FCN amount will not a consideration for stockist for selling the goods at lower prices as there is NO agreement between supplier (manufacturer) and the end consumer. It is usually called Price Drop.
An FCN for Tender; without agreement with end customer
(b) The stockist of laptops is submitting a tender for the supply of laptops for a Government purchase. He requests for a special discount from his supplier (manufacturer) and gets the FCN. This FCN amount will not be added to his supply. Here, the end customer is known but there is no agreement between Supplier (manufacturer) and end customer.
An FCN for bulk supply; agreement with end customer
(c) A private college contacts the supplier (manufacturer) either directly or through the laptop stockist and enters in to an agreement for a discounted price for laptops which are stocked at stockist’s place. The stockist gets this FCN along with the copy of letter from his supplier to supply the goods to the end customer (college) at a price agreed by the Supplier (manufacturer). This FCN amount will be added to the value of supply of laptop stockist (middleman).
An FCN for Self Sales Promotion Activity
(iii) Where the recipient does some promotion activity and his supplier (manufacturer) gives him FCN. This will not be a consideration for the recipient who by virtue of becoming owner of goods did promotion activity to boost his own sales.
An FCN for agreed promotion and defined consideration
Exception to this is “only when such services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply”. There must be an agreement which must define the promotion work to be done by the recipient and the consideration should also be defined in clear terms.
Examples:
An FCN for Prior sales Promotion
(a) A fountain pen merchant gives advertisement in local media, participates in a stationery exhibition, distributes prizes to meritorious students etc. and on this basis asks for a discount from his fountain pen supplier who grants him discount through FCN. This FCN amount is not a consideration from his supplier to him for the promotion activity. There was neither an agreement nor services with consideration was defined.
An FCN for defined promotion and consideration
(b) A supplier asks his recipient to organise a road show for sales promotion of his TV sets. His letter gives clear direction about place, date, design and products to be displayed. The supplier also promises a consideration and grants it through FCN. This FCN will be added to the supply of TV seller who has done a well defined sales promotion activity for boosting the brand of supplier for an agreed consideration.
An FCN for shop decoration etc.
(c) A supplier asks his recipient to design and decorate his own mobile shop in a particular design for display of mobile phones to boost the brand image of supplier and either promises or pays a fixed sum on his assent. The FCN in this case will get added as the supply of sales promotion services of Mobile seller.
8. This circular deals agreement with end customer and agreement about sales promotion and clarifies general FCN issuance. The self assessment provision under section 59 of GST Act will shift the liability to prove the existence of “such agreement” on the Department. While Circular 251 clarifies major issues relating to FCNs, unique business practices may still generate interpretational challenges. Constructive feedback and judicial precedents will continue to shape this area of GST law.
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Author: Sudip Kumar Gupta, Indore (MP) | Ex. Member Law Committee (GST) | Ex. Member, MP Commercial Tax Appeal Board | sudipgupta2001@yahoo.com
Author Bio
Gives a clear explanation on the subject. Highly useful.