CBIC Circular 251/08/2025: Landmark Clarity on GST Treatment of Post-Sale (Secondary) Discounts - With Practical Examples
Why this matters. Post-sale discounts-year-end schemes, turnover rebates, "corporate employee" price support, co-branding payouts-have been litigation magnets since GST began. CBIC's Circular No. 251/08/2025-GST dated 12 September 2025 settles three core questions:
ITC reversal on financial/commercial credit notes, whether manufacturer-to-dealer discounts are "inducement/consideration" for the dealer's sale to the end customer, and when promotional activities by dealers are a separate taxable service.
The three clarifications:
1) No ITC reversal when a supplier issues a financial/commercial credit note (no GST shown)
If the manufacturer issues a financial/commercial credit note (i.e., without reducing its original output tax), the recipient keeps full ITC-there's no proportionate reversal-because the original taxable value and tax paid remain unchanged. Earlier Circular 92/11/2019-GST already allowed such financial/commercial credit notes without tax adjustment; the new circular re-affirms the ITC position for recipients.
2) Manufacturer's post-sale discount to dealer is not "inducement" for dealer's sale-unless there's an agreement with the end customer
In the usual principal-to-principal chain (manufacturer → dealer → consumer) with no agreement between manufacturer and the end customer, a post-sale discount from manufacturer to dealer is simply price support to push sales. It does not constitute consideration (or "monetary value of inducement") for the dealer's onward supply, so it isn't added to the dealer's taxable value. However, if the manufacturer has an agreement with the end customer to supply at a discounted price and funds that discount to the dealer (via financial/commercial CN), that funding becomes part of the consideration for the dealer's supply (third-party consideration) and must be included in the value of the dealer's outward supply.
3) Promotional activities by dealers: discount ≠ service; GST applies only when a distinct service is contracted and paid for
General promotional hustle a dealer does to sell its own inventory isn't a separate service to the manufacturer; the discount merely reduces the dealer's cost/price. GST applies only when the dealer undertakes specific, contracted activities (ads, co-branding, customisation, special drives, exhibitions, customer support, etc.) with clearly defined consideration-then the dealer is supplying a separate service and must charge GST on that service.
Quick cheat-sheet
Financial/commercial CN (no GST): Supplier's tax liability unchanged → no ITC reversal by recipient.
Normal Section 34 CN (with GST): Supplier reduces tax → recipient must reverse proportionate ITC (unchanged by the new circular; general law applies).
No tripartite agreement: Manufacturer's discount to dealer not dealer's consideration → don't gross-up dealer's value.
Tripartite/price-support agreement with end customer: Manufacturer-funded discount is part of consideration for dealer's sale → include in dealer's value (think third-party consideration under s.2(31)/s.15).
Promotions: Tax only when explicitly contracted as services with consideration; otherwise no separate service.
Six practical scenarios (with numbers)
Assumption: GST @ 18% for illustration.
Example 1 - Financial/Commercial CN; no ITC reversal
Manufacturer sells to Dealer: Rs. 1,00,000 + GST Rs. 18,000 = Rs. 1,18,000. Later gives a financial CN Rs. 10,000 (no GST).
Dealer pays net Rs. 1,18,000 − Rs. 10,000 = Rs. 1,08,000 to manufacturer.
Dealer
keeps full ITC Rs. 18,000; Manufacturer cannot reduce output tax.
Why: No reduction in original tax-financial CN
doesn't alter supplier's tax or recipient's ITC.
Example 2 - Section 34 CN with GST; ITC reversal needed
Original sale as above. Supplier issues regular CN Rs. 10,000 + GST Rs. 1,800.
Supplier reduces output tax by Rs. 1,800.
Dealer must reverse ITC Rs. 1,800.
Why: This is a tax-adjusting credit note under Section 34; the circular doesn't change this.
Example 3 - Year-end turnover rebate; no tripartite agreement
Dealer meets targets; Manufacturer issues financial CN Rs. 4,00,000 × 2% = Rs. 8,000 (no GST).
No change to any past invoices; no ITC reversal by Dealer.
Not a separate service; just price support on principal-to-principal sales.
Example 4 - Corporate-employee scheme (tripartite understanding): include in value
Manufacturer ties up with Corporate X: employees get Rs. 5,000 off on a model.
Dealer sells to employee for Rs. 45,000. Manufacturer funds Rs. 5,000 via financial CN to Dealer. Dealer's taxable value must be Rs. 50,000 (Rs. 45,000 from customer + Rs. 5,000 third-party consideration from Manufacturer). GST @18% = Rs. 9,000.
Dealer should document the arrangement and either:
invoice value Rs. 50,000 (collect Rs. 45,000 from buyer; show Rs. 5,000 received/credited by manufacturer), or
issue a debit note to gross-up if it had inadvertently invoiced only Rs. 45,000 + GST earlier.
Why: Manufacturer-funded discount linked to a specific end customer agreement is inducement/consideration for Dealer's supply, so it's included in value (s.2(31)/s.15 context).
Example 5 - Co-branding/advertising as a distinct service: GST applies
Manufacturer contracts Dealer to run a month-long local ad campaign; pays Rs. 1,00,000.
Dealer raises separate GST invoice for services: value Rs. 1,00,000; GST Rs. 18,000.
This is not a discount-don't net it against purchase price.
Why: Explicitly contracted service with defined consideration = distinct taxable supply.
Example 6 - General shelf-push, no contract: no separate service
Dealer organises an in-store weekend push on its own to clear stock; later receives a financial CN Rs. 50,000 from Manufacturer.
No GST on the "discount," and no ITC reversal.
No service to Manufacturer; Dealer just sold its own inventory.
Documentation & ERP/returns checklist
1. Classify the credit note correctly
Financial/Commercial CN (no GST): Tag as price support rebate. Ensure supplier doesn't reduce output tax; recipient retains full ITC.
Section 34 CN (with GST): Enable auto-reversal of ITC at recipient end.
2. Tripartite/price-support schemes
Keep written evidence of manufacturer-end customer agreement + scheme circulars/emails.
Configure ERP so that third-party funded discounts flow into dealer's taxable value (value = customer price + manufacturer funding).
3. Promotional services
If there's a scope of work + fee, raise a separate service invoice with GST; don't net against goods value.
If no explicit contract/fee, treat manufacturer's payout as discount, not services.
4. Return positions
Supplier giving financial CN: do not reduce outward tax in GSTR-1/3B.
Recipient of financial CN: no ITC reversal in 3B.
Tripartite cases: ensure the dealer's outward value reflects both the customer payment and manufacturer's funding.
What the circular does not change
The legal framework of Section 34 credit notes-when tax is adjusted, recipient must reverse ITC.
The earlier permission (2019) to issue financial/commercial credit notes without tax adjustment (and without supplier reducing tax).
Strategic takeaways for manufacturers & dealers
Design schemes deliberately. If you want a pure price support(no gross-up at dealer end), avoid end-customer agreements; structure as principal-to-principal and use financial CNs.
Where corporate/employee tie-ups are essential, be prepared to treat funding as third-party consideration and include in dealer's value-plan POS/ERP and invoicing accordingly.
Separate services from discounts. If you expect ads/co-branding, contract and bill them as services; don't muddle them with goods discounts.
Reduce disputes with paper trails. Scheme letters, emails, and reconciliations will be decisive in audits. Press coverage and practitioner notes concur that the circular should materially reduce litigation on these points.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.