CBIC Says No ITC Reversal for Post-Sale Discounts
The Central Board of Indirect Taxes and Customs (CBIC) has clarified that buyers will not be required to reverse Input Tax Credit (ITC) when suppliers provide post-sale financial or commercial discounts through credit notes. The clarification states that such discounts do not reduce the taxable value or the supplier’s GST liability.
Clarification on Discounts
According to the circular, price reductions offered by manufacturers to dealers will not be treated as consideration for services. However, if dealers undertake promotional activities such as advertising, co-branding, or exhibitions under an explicit agreement, then GST may apply on those services.
Importance of the Move
The clarification resolves confusion over whether ITC reversal was required when credit notes were issued after the completion of supply. It specifies that GST implications arise only when discounts are linked to additional service obligations, reducing the chances of disputes.
Impact on Businesses
Industry experts have welcomed the move, saying it provides greater certainty. Companies will, however, need to carefully review agreements and ensure compliance. Businesses may also need to update their invoices, promotional contracts, and credit note processes to match the clarified rules.
