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GST Circular on treatment of post-sale discounts

We wish to apprise you on a recent circular issued by Central Board of Indirect Taxes and Customs (“CBIC”) providing clarification on treatment of various post-sale discounts under GST vide Circular no. 105/ 24/ 2019 – GST (“new circular”). NASSCOM had participated in the Industry Consultation called for by CBIC in the month of November 2018 and had shared a detailed submission on sales promotion schemes.

This Circular is in continuation to Circular no. No. 92/11/2019-GST dated March 07, 2019 (“earlier circular”) issued which had clarified that commercial credit notes may be issued without GST adjustments.

To recap, the earlier circular had clarified that issuance of commercial credit notes would not impact credit availed in the hands of the “supplier”.  After various representations filed by trade associations raising the issue of credit eligibility in the hands of the recipient, the new Circular provides that the recipient is not required to reverse the Input Tax Credit (“ITC”) attributable to post-sale discount received through issuance of financial /commercial credit notes as long as the payment of the reduced price along with the original tax charged by the supplier is made by the recipient.

This clarification puts to rest the confusion created by the Advance Ruling Authority, Tamil Nadu in the case of MRF Limited [2019-VIL-71-AAR]

Summary of the treatment of other discounts and their taxability as clarified by the circular is provided below:

S.no. Particulars

Clarification

Treatment of such discount

Taxability

1. Post-sale discount given by the supplier of goods to the dealer without any further obligation or action required at the dealer’s end Related to the original supply of goods and Not to be included in value of supply, subject to satisfaction of conditions of Section 15(3) of CGST Act
2. Additional discount given by the supplier of goods to the dealer as a post-sale incentive requiring the dealer to do some activities like undertaking special sales drive, advertisement campaign, exhibition, etc. This transaction will be treated as a separate transaction and discount will be treated as consideration for undertaking such activity. Dealer would be required to discharge GST on the value of additional discount.  Further, original supplier (being recipient of promotional service) shall be eligible for ITC of GST so charged by dealer.
3. Additional discount by the supplier of goods to the dealer to offer a special reduced price to the customer The additional discount represents consideration flowing from the supplier of goods to the dealer for supply made by the dealer to the customer. Additional discount would be added to the consideration payable by end customer. The customer, if eligible, can claim ITC benefit of GST paid on such additional discount.

Trust you find this update useful.

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