No Credit for Post Sale
Discount, Only Agreement Cases Covered
The
CBIC has issued clarifications on the GST treatment of secondary or post-sale discounts
to ensure uniformity across field formations:
1.
Input Tax Credit (ITC) on discounted payments
o If suppliers issue financial/commercial credit notes
(not reducing tax liability), the recipient can still avail full ITC.
o No reversal of ITC is
required, since the original tax liability remains unchanged.
2.
Post-sale discounts to dealers/distributors
o Normally, sales between
manufacturer and dealer, and dealer and end customer, are on a principal-to-principal basis.
o Discounts given for
competitive pricing are not treated as “consideration” for any service by the
dealer.
o However, if the
manufacturer has an agreement
with the end customer for a discounted supply, and issues
credit notes to dealers to enable that, such discounts form part of overall consideration
(as inducement to supply to the end customer).
3.
Post-sale discounts vs promotional activities
o General discounts are not consideration for
promotional efforts by dealers; they just reduce the sale price.
o But if dealers perform specific promotional services
(advertising, co-branding, sales campaigns, exhibitions, customer support,
etc.) under an explicit agreement with defined payment, then those services are
treated as a separate
taxable supply, and GST
applies.