Clarification on applicability of GST on discount under GST

[Ganeshan Kalyani]

Vide Circular No. 105/24/2019-GST dated 28.06.2019 doubts has been clarified on treatment of GST on secondary or post-sales discount. Previous to this circular the clarification was given on various doubts related to treatment of sales promotion schemes under GST vide Circular No. 92/11/2019-GST dated 07.03.2019.

In the Circular dated 28.06.2019 four types of scenarios are considered and GST implication on those scenarios are clarified.

Scenario 1. Discount given by the supplier of goods to the dealer without putting any obligation on him to do any activity like advertisement campaign, exhibition etc. would be related to the original supply and GST benefit will be allowed to the dealer on fulfillment of the condition laid down u/s 15(3) of the CGST Act, 2017. If the conditions viz. i) such discount is established in terms of an agreement, ii) the dealer should reverse the input tax credit, iiI) credit note should be raised within six months from the end of the financial year the supplier of goods can raise credit note with applicable GST on it.

Scenario 2. Discount discount given by the supplier of goods to the dealer with an obligation on him. The supplier of goods may ask the dealer to undertake activity like special sales, drive, advertisement campaign, exhibition etc. and for these purpose a discount is given by the supplier of goods as an incentive to the dealer. In this scenario the activity undertaking by the dealer shall be treated as a separate supply. The dealer is accordingly required of issue tax invoice with GST as a business support service. The tax invoice so received by the supplier of goods shall take input tax credit based on such invoice.

Scenario 3. Discount is given to the dealer so that he inturn offers the discounted price to his customers. This is done to increase sales. On receiving discount from the supplier of goods the dealer tend to lower the price to be offered to his customer. It is clarified that the dealer will have to add back the discount part to the price offered to customer. The dealer will also require to raise tax invoice on the supplier of goods for such discount. In nutshell the dealer is not required to reduce his price to customer if any discount is given by the supplier of goods.

Scenario 4. Discount given to the dealer by way of financial /commercial credit note. The supplier cannot raise GST credit note i.e. credit note with GST, if the conditions laid down in GST is not fulfilled. The conditions being - the discount given post supply must be predetermined at the time of supply, the input tax credit should have been reversed by the dealer. And in case the credit note is issued after September from the end of the previous financial year the credit note cannot be issued with GST. It is clarified that though credit note is without GST the dealer can take full input tax credit of the original supply received by him from the supplier of goods.