Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 105/24/2019-GST dated 28th June, 2019 to clarify issues raised with respect to tax treatment of secondary discounts or post sales discount under GST.

Key points of the Circular are

1. It has been clarified that, if the post-sale discount is given by the supplier of goods i.e. manufacturer or wholesaler, etc. to the dealer without any further obligation or action required at the dealer’s end, then the post sales discount will be related to the original supply of goods and it would not be included in the value of supply, in the hands of supplier of goods, subject to the fulfilment of provisions of Section 15(3)(b)* of the CGST Act, 2017.
2. It has been further clarified that, if the additional discount given by the supplier of goods to the dealer is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition etc., then such transaction would be treated as a separate transaction and the additional discount will be the consideration for undertaking such activity and therefore would be in relation to supply of service by dealer to the supplier of goods. The dealer, being supplier of services, would be required to charge applicable GST on the value of such additional discount and the supplier of goods, being recipient of services, will be eligible to claim input tax credit (hereinafter referred to as the “ITC”) of the GST so charged by the dealer.
3. It has been further clarified that, if the additional discount is given by the supplier of goods to the dealer to offer a special reduced price by the dealer to the customer to augment the sales volume, then such additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to the customer. This additional discount as consideration, payable by supplier of goods would be liable to be added to the consideration payable by the customer, for the purpose of arriving value of supply, in the hands of the dealer. The customer, if registered, would be eligible to claim ITC of the tax charged by the dealer only to the extent of the tax paid by the said customer to the dealer.
4. It has been further clarified that, where post-sales discount granted by the supplier of goods is not permitted to be excluded from the value of supply in the hands of the said supplier, the supplier of goods can issue financial / commercial credit notes in such cases but he will not be eligible to reduce his original tax liability. Doubts have been raised as to whether the dealer will be eligible to take ITC of the original amount of tax paid by the supplier of goods or only to the extent of tax payable on value net of amount for which such financial / commercial credit notes have been received by him. It is clarified that the dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received by him through issuance of financial / commercial credit notes by the supplier of goods in accordance with Rule 37(1) of CGST Rules, 2019 read with second proviso to sub-section (2) of section 16 of the CGST Act as long as the dealer pays the value of the supply as reduced after adjusting the amount of post-sale discount in terms of financial / commercial credit notes received by him from the supplier of goods plus the amount of original tax charged by the supplier.

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* Section 15

(3)The value of the supply shall not include any discount which is given––

(b) after the supply has been effected, if—

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply

Source: Central Board of Indirect Taxes & Customs

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