Clarification on Treatment of Post-Sale Discounts under CGST Act, 2017
This document summarizes a circular clarifying the Goods and Services Tax (GST) treatment of post-sale discounts offered by manufacturers to dealers, specifically regarding whether these discounts constitute consideration for services rendered.
Legal Basis:
Section 31 of the CGST Act, 2017 defines consideration to include the monetary value of any act undertaken to induce the supply of goods or services, whether by the recipient or another party.
Scenario 1: Autonomous sales Transactions – No Agreement with End Customer
When a manufacturer and end customer have no direct agreement, and sales occur through a dealer, two independent transactions exist: one between the manufacturer and the dealer, and another between the dealer and the end customer. In these cases, the dealer owns the goods after purchase from the manufacturer. Discounts offered by the manufacturer to the dealer are considered reductions in the sale price and do not represent consideration for any service rendered to the manufacturer. These discounts are simply a competitive pricing strategy to boost sales.
Scenario 2: Agreement with End Customer & manufacturer Support
If the manufacturer does have an agreement with the end customer to supply goods at a discounted price, and later issues credit notes to the dealer to facilitate this discounted rate, the discount is considered part of the overall consideration. This is because the discount acts as an inducement for the dealer to supply goods to the end customer at the agreed-upon price.
Scenario 3: Post-Sale Discounts & Dealer Promotional Activities – General Rule
Even when a dealer receives a post-sale discount, if the dealer’s promotional activities primarily benefit their own sales and revenue (selling goods thay already own), the discount is not considered payment for a separate service provided to the manufacturer. The discount remains a reduction in the purchase price.
Scenario 4: Explicitly Defined Promotional Services
Though, GST will be levied if the dealer undertakes specific, agreed-upon sales promotional activities for the manufacturer, such as:
* Advertising campaigns
* Co-branding initiatives
* Customization services
* Special sales drives
* Exhibition arrangements
* Customer support services
This applies only when these services are explicitly outlined in an agreement with a clearly defined consideration payable for their provision. In such instances, the dealer is providing a distinct service to the supplier, triggering GST liability.
Implementation & Further Guidance:
Trade notices will be issued to publicize this circular. Any difficulties encountered during implementation should be reported to the Board.
Source: https://a2ztaxcorp.net/wp-content/uploads/2025/09/Cir251-13092025.pdf
