Circular No. 251/08/2025 dated 12.09.2025 provides clarification on the taxability of post-sale discounts, including whether such discounts are taxable, exempt, or necessitate ITC reversal. The key highlights of the circular are as follows:
The circular outlines three specific scenarios in relation to post-sale discounts:
1. Post-Sale Discount given through Commercial Credit Note (CCN): Whether ITC reversal required on such Discount?
Facts/situation/conditions :-
- At the time of original supply, the recipient is eligible to avail full ITC, subject to compliance with all conditions under Section 16.
- When the supplier issues a CCN towards post-sale discount, the supplier is not permitted to reduce his output tax liability.
- Consequently, there is no obligation on the recipient to reverse ITC attributable to such discount.
RESULT:-
The recipient shall not be required to reverse the Input Tax Credit corresponding to the discount extended through financial/commercial credit notes issued by the supplier.
2. Post-sale discounts – Whether it is consideration for dealer’s supply to end customer
Facts:-
- A manufacturer sells goods to a dealer.
- The dealer subsequently sells those goods to the end customer.
- The manufacturer provides a post-sale discount to the dealer
Issue :-
Whether such post-sale discount is required to be added to the consideration for supply made by the dealer to the end consumer, treating it as a monetary value given by the manufacturer as an inducement for such supply?
Reference:-
In light of Section 2(31) of the CGST Act, “consideration” includes the monetary value of any act or forbearance, provided as an inducement for the supply of goods or services, whether by the recipient or by any other person. In this case, the manufacturer (being “any other person”) pays an amount in relation to the supply made by the dealer to the end consumer.
Situation :-1 :- No agreement between Manufacturer and end consumer:-
- Two independent supplies exist on a principal-to-principal basis:
- First, between the manufacturer and the dealer; and
- Second, between the dealer and the end customer.
- The discounts are provided merely to enable competitive pricing and to push sales.
- Such discounts only reduce the effective sale price and are not linked to any independent activity performed by the dealer for the manufacturer.
RESULT (Situation -1):-
Such discounts cannot be treated as part of consideration, since they do not represent the monetary value of an inducement for the further supply of goods.
Situation :-2 :- If Agreement exist between Manufacturer and end consumer:-
- An Agreement exists between Manufacturer and end consumer for reduced/ discounted price to such end consumer.
- In order to give effect to this arrangement, the manufacturer provides such discount by issuing a credit note to its dealer, thereby enabling supply to the end consumer at the reduced/discounted price.
RESULT (Situation -2):-
Such discount shall form part of the consideration, as it represents the monetary value of an inducement for the supply of goods made by the dealer to the end customer.
3. Post-sale discounts – Whether it is consideration for Promotional Activities by dealers
Facts:-
- Promotional activities may include advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, customer support services, etc.
- Dealers receive post-sale discounts through commercial credit notes (CCN) from the manufacturer for undertaking such promotional activities to boost sales.
Issue:-
Do such promotional activities constitute a supply by the dealer to the manufacturer?
Situation :-A :- No agreement between Manufacturer and Dealer (Commercial credit note received for such promotion activity)
- The dealer engages in promotional activities at his own initiative, primarily to boost his own sales.
- The dealer receives post-sale discounts, which only reduce the effective sale price of goods.
- Such discounts are not linked to any independent service (i.e., promotional activities) rendered to the manufacturer.
RESULT (Situation -A):-
Such a discount shall not be treated as consideration for a separate supply of services by dealer to Manufacturer
Situation-B:- Agreement exists between Manufacturer and Dealer,
- An explicit agreement exists between the manufacturer and the dealer.
- The agreement clearly stipulates that the dealer shall undertake specified promotional activities, and consideration for such services shall be provided by the manufacturer in the form of commercial credit notes.
RESULT (Situation -B):-
Such activities constitute a separate supply of services by the dealer to the manufacturer. Accordingly, GST is payable on the value of such services.
*****
Disclaimer: The information provided in this write-up is for general informational purposes only. Every effort has been made to ensure the accuracy and reliability of the content; however, readers are advised to verify the information with the relevant provisions of the GST law or seek professional advice tailored to their specific circumstances. The author disclaim any liability for errors, omissions, or actions taken based on this material.
Author Bio
