The CBIC vide Circular No. 112/31/2019 – GST dated October 03, 2019 has ab-initio withdrawn Circular No. 105/24/2019-GST dated June 28, 2019 (“Circular 105”) wherein clarifications were made on various doubts related to treatment of secondary or post-sales discounts under GST.
Amongst other clarification(s), Para 3 and 4 of Circular 105, inter alia, stated the following as regards secondary or post-sales discounts under GST:
- If the additional discount given by the supplier of the goods to the dealer is the post-sales incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition, etc., then such transaction would be a separate transaction subject to GST.
- To augment the sales, the manufacturer gives a special discount in the form of reduced price by the dealer to customer. Such an additional discount represents the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to consumer and hence, is subject to GST.
In view of the above factual background and others, various representations were made before the concerned authorities requesting their kind consideration on the issues/concerns leading to severity of post-sale discount conundrum.
Recommendation by GST Council to rescind Circular 105, ab-initio:
In the light of matter being represented with the CBIC and GST Council, the GST Council in its 37th meeting held on September 20, 2019 has recommended to rescind Circular 105, ab-initio.
Our comments:
Withdrawing the above circular does not put end to ongoing post-sale discount conundrum. In the interest of ease of doing business and to ensure no litigation on this issue in future, concept of commercial/ financial credit note (without GST) must be applied uniformly to all such scenarios of post-sales discounts, falling short of the conditions as mentioned under Section 15(3)(b) of the CGST Act. It is needless to mention that the CBIC itself has accepted the concept of a commercial/ financial credit note (without GST) in its earlier circular dated March 7, 2019 and FAQs, which was reiterated in impugned Circular 105 as well.
Read more at: http://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-112.pdf;jsessionid=0F8FE4DEABAF57C1CA1AE83398D0BE17