The Central Board of Indirect Taxes and Customs (CBIC) has issued a crucial clarification on the treatment of secondary or post-sale discounts under the GST. According to the circular, trade discounts given by manufacturers to dealers solely for competitive pricing and boosting sales will not attract GST.
However, the CBIC made it clear that GST will be applicable if such discounts are linked to specific promotional activities undertaken by dealers on behalf of manufacturers. These include co-branding, advertising campaigns, special sales drives, customisation services, exhibitions, or customer support-provided such obligations are part of a formal agreement with clearly defined consideration.
The clarification comes after the CBIC received multiple representations from businesses seeking guidance on whether such post-sale discounts amount to consideration for services. The Board explained that when dealers receive discounts, their efforts to increase sales-such as local marketing or quicker stock clearance-are primarily for their own benefit, as they own the goods. In such cases, the discount only reduces the effective sale price and does not constitute payment for an independent service.
"Therefore, it is clarified that post-sale discounts offered by manufacturers to dealers in such cases shall not be treated as consideration for a separate transaction of supply of services," the CBIC noted in the circular.
Tax experts welcomed the move, calling it a long-awaited resolution to a contentious issue. One expert observed that the government has rightly distinguished routine trade discounts from independent service transactions, eliminating the risk of unnecessary GST liability. "This clarification brings much-needed alignment with commercial practices and will help reduce interpretational disputes," he said.
Another expert added that the circular rightly upholds the principle of principal-to-principal dealings between manufacturers and dealers. "The government's stand ensures that genuine trade discounts for competitive pricing are not mistaken as service consideration, thus preventing avoidable litigation," he remarked.
The CBIC also highlighted that input tax credit (ITC) remains unaffected when financial or commercial credit notes are issued in relation to such discounts, further easing compliance concerns.
Industry observers believe the move will provide greater certainty to businesses, allowing them to structure their agreements and pricing strategies more efficiently. "By clearly differentiating between trade discounts and promotional services, the CBIC has paved the way for a more streamlined GST regime," a tax expert concluded.
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