Quick Summary
A recent circular issued by the government has clarified the treatment of trade discounts and credit notes under the Goods and Services Tax (GST) regime, but experts warn it may shift compliance and cash-flow burdens onto FMCG distributors. Key clarification: Credit notes and ITC GST Circular 251
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FAQ :
FMCG distributors are concerned that the circular may shift compliance and cash-flow burdens onto them, particularly due to unutilised input tax credit (ITC) balances that effectively lock up working capital.
The circular confirms that financial or commercial credit notes issued without GST do not require distributors to reverse their ITC. However, distributors may still hold excess ITC that cannot be fully utilised.
Distributors are awaiting the notification of an amendment to Section 15 of the CGST Act, which is expected to ease ITC accumulation at the recipient's end.
If manufacturers support dealer pricing, no additional GST arises. However, if discounts are promised directly to consumers, dealers must include this support in the taxable value and pay GST.
The AICPDF has sought clarifications on GST rate cuts and ITC treatment, highlighting an anomaly in the detergent segment where GST rates differ for detergent cakes and washing powders.
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