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Menace Of Post-Sales Discount

In this article, we shall analyze how the dealers have been forced to re-look and re-define completely their promotional strategy in relation to post-sale discounts.

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Discount is probably the main attraction that fascinates buyer but GST can irritate both the ends. When a discount is offered to a buyer, seller foregoes some probable sales revenue and tax authorities forego proportionate tax revenue. This seems to be unjust to policy-makers and thereby they have created a set of revenue favoring rules.

Businesses offer a variety of discounts and promotional schemes to boost revenue and to attract more customers. These discounts can be upfront or in slabs, pre-sales or post-sales, periodic or conditional. In this article, we shall analyze how the dealers have been forced to re-look and re-define completely their promotional strategy in relation to post-sale discounts.

Invoice-wise connecting of discounts
Post-supply discounts are provided based on the value of transactions undertaken during the period and one to one nexus with invoices is not possible. However, the technological framework of GST mandates a registered person to issue one credit for every single invoice, linking value of discount with all invoices issued during the period. This is the most challenging task, for every retail business. 

Additional consideration
Various sales promotion schemes are run by manufacturers on a periodic basis. The dealers are being incentivized by giving them an additional discount, requiring them to do certain activities on behalf of supplier like special sales drive, advertisement campaign. Such schemes contended by government as a separate service by dealer to manufacturers against which separate tax invoice needs to be issued. This is a cumbersome task for the dealers as they are required to issue tax invoice for each such discount and accordingly liable to pay tax on same. Although, recipient of services will be eligible to claim input tax credit on same, this would push compliance burden on both sides as this would be a mere accounting transaction. This has stumped the industries for which discounts are commonly used to promote sales. Further, if the original supply was an exempt supply and any promotional scheme is run by the distributor, charging GST on the said transaction seems illogical and unviable.

Manufacturer driven sale augmentation discounts
During festival period or stock clearance period post-sale discount is provided by a manufacturer in the form of additional discount to dealers to offer a special reduced price to customers to augment the sales volumes. Recently a circular has been issued by department on this issue which has clarified that this discount value would be added to the consideration payable by the customer for the purpose of computation of taxable value in the hands of the dealer and GST will be applicable on such higher price.

Usually, manufacturing companies provide additional discount to dealers to sell the old models at the lower price in order to clear the stock. This happens when a new variant of the product (eg Car) is being launched in the market.  Thus, a discount is offered by principal manufacturers but it becomes a part of the consideration in the hands of distributors, requiring them to pay tax on a higher amount and also results in higher cost being incurred by principal manufacturers.

In case of post sales discount which is given to augment the sales, clarity also needs to be given in relation to the treatment of tax credit on account of sales return by the end customer. 

Clarity on taxation and assessment also needs to be made in cases where manufacturer offers additional discount to the dealer to offer a special reduced price to the customer to augment the sales volume, However, dealer retains such additional discount offered by manufacturer. We believe such cases may be subject matter of double taxation or litigation in days to come.

The big and the foremost question is on manner of invoicing. Entire IT software infrastructure needs to be revamped as currently the billing software would be automatically computing GST on the final price charged to a customer. Whereas now new logics need to be built in the system which can capture discounts flowing from manufacturer given under the garb of sales augmentation.

We believe that the government should rethink on this entire episode of post-sale discount proposition and provide more clarity all various aspects keeping in view the current industry practices and challenges.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Rajat Mohan

The author is Partner, AMRG & Associates

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