CBIC has issued fresh clarifications on secondary or post-sale discounts under GST:

• Dealers are NOT required to reverse Input Tax Credit when they receive financial/commercial credit notes for secondary discounts, as long as tax liability has not been reduced by the supplier. Where a Financial Credit Note or commercial credit note is issued by the supplier, in such cases, 'transaction value' is not allowed to be reduced on account of issuance of such credit notes, accordingly the tax charged from the recipient would also not get reduced, as there is no reduction in the original 'transaction value' of the supply.

• Generic post-sale discounts (e.g., to push sales or for competitive pricing) where there is no tripartite agreement with end-customer will NOT be treated as consideration for supply of services between dealer and manufacturer. These discounts are simply given for competitive pricing to push sales and merely reduce the sale price of the goods and are not linked to any independent activity rendered to the manufacturer. Therefore, it is clarified that such a discount cannot be included in 'consideration' as the 'monetary value' of the 'inducement' of further supply of these goods.

• If manufacturer and end-customer have a pre-agreed discounted price and the dealer sells at that discounted price, such post-sale discount is considered “inducement” and forms part of overall consideration.

• Dealers’ routine promotional efforts (which benefit their own sales) do NOT attract GST on discounts as the discount merely reduces the sale price of the goods and is not linked to any independent service rendered to the manufacturer. But if the dealer undertakes specific promotional activities explicitly for the manufacturer sales promotional activities, such as advertising campaigns, co-branding, customization services, special sales drives, exhibition arrangements, or customer support services, etc., and a separate consideration is explicitly stated in the agreement with a clearly defined consideration payable for such a supply, then GST will apply.

This ensures much-needed certainty for trade reinforcing the principal-to-principal nature of manufacturer-dealer transactions unless specific agreements or contractual arrangements suggest otherwise.

• Recipients can confidently claim full ITC on transactions involving financial/commercial credit notes without fearing future reversals or disputes.

• As Circulars are binding on the Department and clarificatory in nature, so it will help in putting an end to plethora of litigations which are ongoing or would be pending to be disposed once the GSTAT becomes operational.

• The principal-to-principal distinction is underlined as post-sale discounts are not taxable as service unless a separate activity/contract for promotion is present.

• Documentation becomes critical which now demands dealers (and manufacturers) to maintain clear records to prove whether discounts relate to independent supply/services or not.

• Organizations using trade discounts as indirect service incentives must revisit their agreements. Separate, explicit consideration clauses can now trigger GST liability.

• Evaluation of contracts and discount structures is now more important than ever for managing GST exposure.

Download Circular 251/08/2025-GST dated 12-Sept-2025 https://drive.google.com/file/d/1uo19uxTubYC0GDtc1Tr8QVBEeHZLauos/view?usp=drive_link

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