CBIC vide Circular No. 105/24/2019-GST dated June 28, 2019, has clarified that the treatment of tax in cases of secondary discounts or post-sales discount under GST regimes for the purpose of determination of the value of supply.
- If post-sale discount is given by the manufacturer or wholesaler (“supplier of goods“) to the dealer without any further obligation or action required at the dealer’s end, then such discount will be related to the original supply of goods and not included in the value of supply subject to the fulfillment of provisions of Sub-Section (3) of Section 15 of the Central Goods and Services Tax, 2017 (“CGST Act“). However, if the additional discount is given by the supplier of the goods to the dealer as post-sale incentive requiring the dealer to do some activities 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. The dealer would be required to charge applicable GST on the value of such additional discount and the supplier of goods will be eligible to claim an input tax credit (“ITC”) of the GST so charged by the dealer.
- If the additional discount is given by the supplier of goods 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 the 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 the second proviso to sub-section (2) of section 16 of the CGST Act.
- 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. It is further clarified that the dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received 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.