Experts welcome GST Council move to ease post-sale discount disputes

GST Council amends rules on post-sale discounts to allow credit notes without invoice linkage, a change experts say will reduce litigation and benefit businesses

Tax experts have welcomed the GST Council’s recommendation to resolve long-standing disputes on the treatment of post-sale discounts, saying it will bring relief to businesses across sectors and cut litigation. Post-sale discounts are essentially price cuts given after a sale is completed, such as a manufacturer offering a rebate to a dealer based on sales volumes achieved over a period of time.

 

The Council has proposed amending Section 15 of the Central Goods and Services Tax (CGST) Act, which defines how the taxable value of a transaction is calculated, and Section 34, which deals with credit notes. A credit note is a document issued by the seller to reduce the value of an earlier invoice, usually to account for discounts or returns. At present, the law permits tax adjustments on discounts only if they are pre-agreed and shown on invoices, which often triggers disputes. The Council has now relaxed this and recommended that discounts reducing a seller’s tax liability can be granted through credit notes, with a corresponding reversal of input tax credit (ITC) by the buyer. ITC refers to the tax paid on purchases that can be set off against tax payable on sales.

 

 

At the same time, the Council has decided to withdraw its June 2024 circular on the issue and issue a fresh clarification to end ambiguity. The clarification will specifically cover whether a manufacturer’s rebate to a dealer should be treated as additional consideration in the dealer’s onward sale to the consumer, whether such discounts are in lieu of promotional activities performed by the dealer, and whether ITC needs to be reversed if the discount is recorded only through a financial or commercial credit note, which does not affect GST liability.

 

According to Vivek Jalan, partner at Tax Connect Advisory Services: “Treating commercial credit notes for post-sale discounts as a service by the recipient has been one of the biggest sources of litigation between industry and tax officers. This 56th GST Council meeting seems to have resolved the issue by coming out with a detailed clarification and a proposed change in the law.” He explained that distributors often get rebates after meeting sales targets, but tax officers were questioning such discounts as if the distributor had provided a service back to the manufacturer—something that was never the case.

 

MS Mani, partner at Deloitte, said the changes will bring much-needed certainty to trade. “The requirement of linking the credit notes issued for post-sale discounts with the original supply invoice, which was causing difficulties for trade, has now been removed. Further, the 2024 circular mandating a certificate by a chartered accountant has also been withdrawn. These changes indicate that the focus is now on adopting business-aligned practices and syncing them with the GST requirement.”

 

Kumar Visalaksh, partner at Economic Law Practice, said the recommendations, once legislated, will provide a clear and uniform framework for handling post-sale discounts, helping manufacturers, distributors, and retailers avoid prolonged litigation and focus instead on business growth.