GST not applicable on post-sale discounts given by manufacturers to dealers

Post-sale discounts given by manufacturers to dealers intended solely for competitive pricing and promoting sales will not be subject to GST, the Central Board of Indirect Taxes and Customs (CBIC) said. However, GST would be payable on such discounts if the manufacturer and the dealer have entered into an agreement under which the latter conducts promotional activities like co-branding, advertising campaigns or sale drives on behalf of the manufacturer. Issuing a circular regarding treatment of secondary or post-sale discounts under Goods and Services Tax (GST), the CBIC said it has received representations seeking clarifications on the issue. When dealers receive such post-sale discounts, they may engage in promotional activities to boost sales. However, these activities ultimately enhance the sale of goods that the dealers themselves own, thereby increasing their own revenue. In this context, the discount merely reduces the sale price of the goods and is not linked to any independent service rendered to the manufacturer. "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 said.

However, GST would be leviable in cases where a dealer undertakes specific sales promotional activities, such as advertising campaigns, co-branding, customisation services, special sales drives, exhibition arrangements, or customer support services, etc., only when such services are explicitly stated in the agreement with a clearly defined consideration payable for such a supply. AMRG & Associates Senior Partner Rajat Mohan said dealers often receive discounts from manufacturers and may, in the process, carry out activities like small marketing drives or efforts to sell faster. However, such actions are undertaken primarily to increase the dealer's own sales and profits. "The government has rightly clarified that these routine trade discounts cannot be treated as payment for any service provided by the dealer to the manufacturer, and therefore no additional GST liability arises in such cases," Mohan added. EY Tax Partner Saurabh Agarwal said the circular correctly distinguishes between a genuine trade discount and a separate service. It affirms that where manufacturers and dealers operate on a principal-to-principal basis, discounts provided by the manufacturer to the dealer, intended solely for competitive pricing and sales promotion, are not a consideration for any independent service.

This crucial distinction resolves a key pain point and brings the tax treatment in line with commercial practice. "In light of these clarifications, businesses must revisit their contractual arrangements and tax positions. The government's clear demarcation between trade discounts and promotional services will significantly reduce interpretational disputes and provide greater certainty in compliance for the industry, paving the way for a more streamlined GST regime," Agarwal said. Grant Thornton Bharat Partner Manoj Mishra said the CBIC's latest circular on post-sale discounts provides long-awaited clarity on an area that has consistently triggered disputes. By affirming that input tax credit will remain unaffected when financial or commercial credit notes are issued, it removes a major compliance uncertainty for dealers. "From a practical standpoint, this puts the onus on businesses to carefully document agreements, credit notes, and customer-level pricing arrangements. "Overall, the clarification is a pragmatic move that strengthens certainty, reduces litigation, and provides a workable framework for industry," Mishra added.