Central Tax Circulars

CGST Circular 105/2019

To,

The Principal Chief Commissioners / Chief Commissioners / Principal Commissioners /
Commissioners of Central Tax (All)

The Principal Director Generals / Director Generals (All)

Madam / Sir,

Subject: Clarification on various doubts related to treatment of
secondary or post-sales
discounts under GST – reg.

1) 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. Hindi version will follow.