This circular provides clarification on the GST treatment of secondary or post-sales discounts offered by suppliers to dealers, with a view to ensuring uniform application of valuation and input tax credit provisions.

The circular explains that post-sales discounts are governed by section 15(3)(b) of the CGST Act and that the true nature of the discount must be examined. Where a post-sales discount is given by the supplier without any obligation on the dealer to perform any additional activity, such discount is treated as relating to the original supply of goods and can be excluded from the value of supply, subject to fulfilment of statutory conditions.

However, where the discount is linked to an obligation on the dealer, such as undertaking sales promotion, advertisement, exhibitions or similar activities, the discount represents consideration for a separate supply of service by the dealer to the supplier. In such cases, the dealer is required to charge GST on the value of the discount, and the supplier is eligible to claim input tax credit of the tax so charged.

The circular further clarifies that where discounts are given to enable the dealer to sell goods to customers at a reduced price, the discount constitutes additional consideration flowing from the supplier to the dealer. Such amount is required to be added to the value of supply in the hands of the dealer, and GST is payable accordingly.

It is also clarified that where financial or commercial credit notes are issued for post-sales discounts not meeting the conditions of section 15(3), the supplier cannot reduce tax liability, and the dealer is not required to reverse input tax credit already availed, subject to prescribed conditions.

These clarifications aim to resolve interpretational issues relating to post-sales discounts under GST.