Clarifications on
Post Sales Discount in GST
[Circular
No. 105/24/2019-GST dated 28 June 2019]
Subject: Clarification on various doubts related
to treatment of secondary or post-sales discounts under GST.
Circular No. 92/11/2019-GST dated 7th March, 2019
was issued providing clarification on various doubts related to treatment of
sales promotion schemes under GST. Post issuance of the said Circular various
representations have been received from the trade and industry seeking
clarifications in respect of tax treatment in cases of secondary discounts or
post sales discount. The matter has been examined in order to ensure uniformity
in the implementation of the law across the field formations, the Board, in
exercise of its powers conferred under section 168(1) of the Central Goods and
Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”) clarifies
the issues in succeeding paragraphs.
2. For the purpose of value of supply, post sales
discounts are governed by the provisions of clause (b) of sub-section (3) of
section 15 of the CGST Act. It is crucial to examine the true nature of
discount given by the manufacturer or wholesaler, etc. (hereinafter referred to
as “the supplier of goods”) to the dealer. It would be important to examine
whether the additional discount is given by the supplier of goods in lieu of
consideration for any additional activity / promotional campaign to be
undertaken by the dealer.
3. It is clarified that if the post-sale discount
is given by the supplier of goods to the dealer without any further obligation
or action required at the dealer’s end, then the post sales discount given by
the said supplier 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 sub-section (3) of section 15 of the
CGST Act. However, 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 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.
4. It is 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 any person (supplier of
goods in this case) 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, under section 15 of the CGST Act. 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 in view of second proviso to
sub-section (2) of section 16 of the CGST Act.
5. There may be cases 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 not being in accordance with the
provisions contained in sub-section (3) of section 15 of CGST Act. It has
already been clarified vide Circular No. 92/11/2019-GST dated 7th March, 2019
that 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 view of the provisions
contained in second proviso to sub-rule (1) of rule 37 of the CGST Rules 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.
6. It is requested that suitable trade notices may
be issued to publicize the contents of this circular.
7. Difficulty if any, in the implementation of
this Circular may be brought to the notice of the Board.