Unlocking GST Certainty on Post-Sale Discounts: Comprehensive Clarifications in CBIC Circular 251/08/2025
Introduction
CBIC Circular No. 251/08/2025-GST, dated 12 September 2025, offers authoritative clarifications on the GST treatment of secondary or post-sale discounts. This circular addresses persistent industry ambiguities and audit challenges that have affected the availability of Input Tax Credit (ITC), the GST taxability of discounts, and the differentiation between commercial price reductions and consideration for promotional services or other supplies.
Background and Rationale
The Circular was issued following recommendations from the 56th GST Council meeting to resolve discrepancies and disputes regarding post-sale/secondary discounts under GST. Trade bodies and tax professionals highlighted inconsistent treatment across jurisdictions, primarily related to ITC reversal practices and GST liability on discounts.
Previously, Circular No. 105/24/2019-GSTclarified similar issues, but it was subsequently withdrawn vide Circular No. 112/31/2019-GST. The current Circular supersedes past uncertainties and aligns interpretations uniformly.
Before delving into the Circular’s clarifications, a discussion on credit notes under GST is necessary, as they are pivotal in understanding post-sale discount mechanisms:
- GST Credit Notes: Issued by suppliers typically for reduction in taxable value, tax charged, returned or deficient goods—governed by Section 34 of the CGST Act, 2017. These mandate output tax liability adjustments by the supplier and corresponding ITC reversals by the recipient.
- Non-GST (Commercial) Credit Notes: Issued to reduce the value of the original supply without altering the tax component. Such notes do not reduce GST liability for the supplier, and recipients retain ITC.
Clarification 1: Input Tax Credit Availability When Financial Credit Notes Are Issued
Issue:
Is full ITC available to the recipient when discounts are granted via financial or commercial credit notes without accompanying GST adjustments?
Clarification:
Section 16(1) of the CGST Act entitles registered persons to ITC on invoices by suppliers, subject to law. CBIC Circular No. 92/11/2019 clarified ITC reversal is warranted only if the supplier reduces taxable value or tax liability by issuing credit notes.
Aligning with these provisions, Circular 251/08/2025 stipulates that if a post-sale discount is granted via a financial/commercial credit note that does not reduce GST charged on the original invoice, the recipient can retain full ITC without reversal.
Example:
ABC Electronics Ltd sells goods worth ₹1,00,000 plus 18% GST (₹18,000) to XYZ Distributors. XYZ claims full ITC of ₹18,000. Later, ABC issues a financial credit note for ₹10,000 discount without GST adjustment.
Result: XYZ retains full ITC of ₹18,000; no ITC reversal is required.
Relevant Advance Rulings:
- MRF Ltd. [2019] 108 taxmann.com 65 (AAAR – TAMILNADU) confirmed no ITC reversal is warranted on financial/ commercial credit notes that do not alter tax liability.
- Vedmutha Electricals [2023] 152 taxmann.com 7 (AAR – ANDHRA PRADESH) upheld full ITC entitlement under similar facts.
- Santosh Distributors (AAR Kerala) further reinforces this position.
The CBIC in Para D of Circular No. 92/11/2019 reiterated that ITC on the original invoice is fully admissible in such post-sale discount cases.
Clarification 2: Tax Implications of Post-Sale Discounts Offered by Manufacturers to Dealers/Distributors
Issue:
Do post-sale discounts granted by manufacturers to dealers constitute consideration for the dealer’s onward supply to the end customer?
Two scenarios are clarified:
Scenario 1: No Agreement Between Manufacturer and End Customer
Clarification:
When manufacturer-to-dealer and dealer-to-end customer transactions are independent, post-sale discounts operating on a principal-to-principal basis and not linked to any service or supply by the dealer shall not be treated as consideration for the dealer’s supply. The discount merely reduces the purchase price without invoking GST on the dealer.
Example:
PQR Textiles offers LMN Garments a year-end volume discount of ₹25,000 for achieving purchase targets, recorded via a commercial credit note. LMN does not undertake additional services in return. No GST is payable on the discount.
Key Judgments:
- Supreme Paradise vs. Assistant Commissioner 2024] 159 taxmann.com 143 (Madras) set aside demands on post-sale volume discounts given through financial credit notes, ruling such discounts, if purely commercial and not service-backed, are excluded from transaction value for GST.
- Tvl. Shivam Steels vs. Assistant Commissioner [2024] 164 taxmann.com 156 (Madras) quashed ITC reversal orders related to such discounts, holding that volume facilitation does not amount to a taxable service.
Scenario 2: Agreement Exists Between Manufacturer and End Customer (End-Customer Linked Concessional Supplies)
Where manufacturers have direct agreements mandating dealers to supply goods at concessional rates, reimbursed via credit notes, such post-sale discounts may be treated as consideration for onward supply and attract GST.
Example:
RST Pharmaceuticals instructs dealers to supply medicines to a government hospital at subsidized rates and reimburses the concession via credit note. Such reimbursement is subject to GST.
Clarification 3: Treatment of Promotional Schemes and Whether They Constitute Consideration for Supply
Issue:
Can post-sale discounts be considered consideration for promotional or service activities undertaken by dealers?
Two cases arise:
Scenario 1: Specific Promotional Activities Under Agreement
If post-sale discounts are explicitly tied to services such as advertising, co-branding, exhibitions, or customer support per a formal agreement, such discounts are consideration for a separate taxable supply of services.
Example:
DEF Mobiles grants an extra 3% discount to GHI Retail Chain for performing agreed promotional activities. GHI must invoice DEF for this discount plus GST.
Scenario 2: No Agreement Exists for Promotional Activities
If no formal agreement or obligation exists requiring the dealer to perform promotional services, and discounts merely reduce the purchase price, these discounts shall not be considered as consideration for supply of services.
Example:
XYZ Electronics grants ABC Distributors a post-sale discount of ₹50,000 for bulk purchases, without any service obligations on ABC. The discount is a straightforward price reduction and does not attract GST.
Conclusion
CBIC Circular 251/08/2025 comprehensively clarifies the GST treatment of post-sale discounts, reinforcing the precedents and legal position established by advance rulings such as MRF Ltd. and Vedmutha Electricals, and judicial pronouncements by the Madras High Court in Supreme Paradise and Shivam Steels.
- Post-sale discounts issued as non-GST financial or commercial credit notes do not require ITC reversal if GST on the original invoice remains unchanged.
- Pure commercial discounts that are not linked to services by dealers do not constitute consideration attracting GST.
- Discounts tied to explicit promotional or service agreements are subject to GST as consideration for supply.
This clarity ensures consistent compliance and mitigates disputes, providing much-needed certainty for taxpayers, dealers, manufacturers, and tax authorities nationwide.
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(the views expressed in this article are strictly personal and author of this article can be reached at caprudhvigst@gmail.com)
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