Manufacturers in industries such as automobile, FMCG, pharmaceuticals, electronics and consumer durables, commonly adopt post-sale (secondary) discount mechanisms to incentivize dealers, liquidate inventory and improve market competitiveness. Secondary discounts are those which are passed on after the initial supply is completed and would not be known/anticipated at the time of supply, which are also used for promoting sale prices during festivals and other occasions.
Despite its widespread commercial use, secondary discounts have given rise to several interpretational issues under the GST regime. Questions arose regarding valuation, reversal of Input Tax Credit (ITC), the characterisation of discounts, and the appropriate manner of passing on such benefits through the supply chain. The Central Board of Indirect Taxes and Customs (CBIC) issued Circulars clarifying the Goods and Services Tax (GST) implications of secondary discounts and related promotional arrangements to address such
