GST Ruling on Post-Supply Discounts and Rate Difference Credit Notes
Post-supply rate difference discounts cannot reduce your GST tax liability unless calculated using a formula pre-agreed before supply.
- Ruling
- NO.GST-ARA-34/2017-18/B- 56 dated 27/06/2018
- Dated
- 27 Jun 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Ultratech Cement asked if post-supply rate difference discounts reduce taxable GST value.
- The authority ruled discretionary post-supply discounts do not lower output tax.
- Discounts require a pre-agreed objective formula established before or during supply.
- Suppliers cannot reduce GST under Section 34 for open-ended or discretionary credit notes.
In short
The Maharashtra Authority for Advance Ruling (AAR) in order GST-ARA- 34/2017-18/B- 56 considered whether a manufacturer can reduce its Goods and Services Tax (GST) liability when compensating dealers for market price drops after sales occur. Ultratech Cement Limited issued post-supply rate difference credit notes to dealers when local market prices fell. The firm asked whether these discretionary post-sale adjustments qualify as permissible discounts to lower the taxable transaction value under Section 15(3)(b) of the CGST Act.
What has changed
How it worked before
Before this ruling, many businesses assumed they could issue GST credit notes under Section 34 to reduce their output tax whenever they compensated dealers for price fluctuations, provided their dealership agreements broadly mentioned that discounts could be given from time to time.
What has changed
The authority decided that discretionary post-sale discounts or rate differences cannot be excluded from the transaction value for GST. To reduce taxable value using credit notes, the exact criteria or formula for the discount must be established in an agreement before or at the time of supply and linked to specific invoices. In practice, manufacturers giving unstructured or discretionary price relief to dealers after a sale cannot reduce their GST liability.
Who this affects
Manufacturers, distributors, and wholesale suppliers who give post-sale price protection, volume relief, or discretionary rate difference credit notes to their dealer network.
An example
A tile manufacturer sells products to dealers with a contract stating that price adjustments may be granted from time to time based on market conditions. After market prices drop, the manufacturer issues credit notes to compensate dealers and attempts to reduce its GST output tax. Based on the reasoning in order GST-ARA- 34/2017-18/B- 56, a tax officer would reject the GST tax reduction because the exact discount formula was not fixed in writing before the goods were supplied.
What you should do
Review your dealer agreements to ensure any post-sale discounts follow a clear, predetermined calculation formula established before goods are dispatched. Keep in mind that an advance ruling legally binds only the company that requested it and its immediate tax office. If your current contracts only contain vague clauses allowing discounts at your discretion, consult a tax advisor to update your agreement terms or stop reducing GST output tax on discretionary credit notes.
If you do nothing
If you reduce your GST output tax using credit notes for discretionary post-sale discounts, tax officers may reject the adjustment during an audit. You will be required to pay the short-paid GST along with mandatory interest and potential penalties. You may also lose the tax benefit permanently if the deadline for adjusting credit notes in your GSTR-3B return passes.
The terms explained
- Transaction Value
- The price actually paid or payable for goods or services, which forms the base amount on which GST is calculated.
- Credit Note
- A document issued by a seller to a buyer reducing the taxable value or tax amount listed on a previously issued invoice.
- Input Tax Credit (ITC)
- The GST a business pays on its business purchases, which it can subtract from the GST it collects on its sales.
The ruling in detail
Authority for Advance Ruling
M/s. Ultratech Cement Limited
NO.GST-ARA-34/2017-18/B- 56 dated 27/06/2018 · Maharashtra
Questions before the authority
- Whether the amount paid to authorized dealers towards "rate difference" after effecting the supply of goods by the applicant to aforesaid dealers can be considered for the purpose of arriving at the 'transaction value' in terms of Section 15 of the CGST Act.
- Whether the amount paid to authorized dealers towards "rate difference" after effecting the supply of goods would be allowed under Section 15(1) read with Section 34(1) of the CGST Act or under Section 15(3) read with Section 34(1) ibid.
Facts
The applicant manufactures and supplies cement and clinker through network dealers on a principal-to-principal basis under tax invoices. Due to market fluctuations, dealers occasionally sell goods below their purchase price, after which the applicant compensates them through post-supply "rate difference" credit notes. Although the dealership agreements mention that discounts may be granted from time to time, there were no predetermined formulas or objective criteria established prior to supply.
Ruling
| Question | What the authority ruled |
|---|---|
| Post-supply rate difference inclusion in transaction value under Section 15 | Answered in the negative. Rate difference paid post-supply cannot be deducted to arrive at transaction value. |
| Allowance of rate difference credit notes under Section 15 read with Section 34(1) | Answered in the negative. Tax adjustment via credit note is disentitled as conditions of Section 15(3)(b) are not met. |
The Authority held that post-supply amounts paid to dealers towards "rate difference" cannot be excluded from the transaction value under Section 15(3)(b) of the CGST Act. Consequently, the applicant cannot reduce its output tax liability by issuing credit notes under Section 34(1) for such discretionary rate differences.
Reasoning
Under Section 15(3)(b) of the CGST Act, post-supply discounts are excludable from transaction value only if established per an agreement entered into before or at the time of supply, linked to specific invoices, with corresponding ITC reversed by the recipient. The applicant's agreements merely contained open-ended clauses allowing the company to decide discounts from time to time without any fixed criteria or predetermined basis. An open-ended discount granted at the supplier's sole discretion does not satisfy Section 15(3)(b), meaning no tax reduction is permissible under Section 34(1).
Provisions relied on
- Section 15(1) of the CGST Act, 2017
- Section 15(3) of the CGST Act, 2017
- Section 15(3)(b) of the CGST Act, 2017
- Section 34(1) of the CGST Act, 2017
- Section 34(2) of the CGST Act, 2017
For the practitioner
This ruling establishes that **discretionary post-supply rate differences** or discounts without explicit, **predetermined objective criteria in prior agreements** cannot reduce the GST transaction value or output liability. To claim GST credit note adjustments under Section 34(1) read with Section 15(3)(b), taxpayers must lay down exact calculation parameters before the supply occurs.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/mah_aar_34_2017-18_b-56_27.06.2018_ucl.pdf
Legibility of the scan, as read: high.
Prepared 19-10-2026.
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