Indirect Tax Alert

Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 (“CGST Act”), allows exclusion of post-supply discounts from the taxable value of supply, provided that the Input Tax Credit (ITC) attributable to such discounts is reversed by the recipient of such supplies.

However, there was no defined procedure enabling either the supplier or the tax authorities to verify whether the recipient had actually reversed the relevant ITC.

Time Limit for Keeping Records Pending

To address this gap, the Central Board of Indirect Taxes & Customs (‘CBIC’) issued Circular No. 212/6/2024-GST, dated June 26, 2024, prescribing a documentation mechanism which imposed an obligation on the supplier to procure confirmation from recipients in one of the following forms:

• Certificate from Chartered Accountant (‘CA’)/ Cost and Management Accountant (‘CMA’): where the tax impact in a financial year exceeded INR 5 lakhs; or

• Self-Undertakings: where the tax amount was below INR 5 lakh.

Latest Departmental Clarification

Through Circular No. 253/10/2025-GST, dated October 01, 2025, the CBIC has withdrawn Circular No. 212/6/2024-GST. The Department has clarified that the procedure prescribed earlier “shall not be required” henceforth. Accordingly, suppliers are no longer obliged to obtain CA/CMA certificates or undertakings from recipients as evidence of ITC reversal.

This withdrawal restores reliance on the statutory provisions of Section 15(3)(b) of the Act alone, without any additional procedural overlay.

Issues and Practical Implication

The 56th GST Council has proposed significant rationalization of valuation provisions including:

• Omission of Section 15(3)(b)(ii): to remove the requirement that post-supply discounts be established under a pre-existing agreement and specifically linked to individual invoices.

• Amendment of Section 15(3)(b) & Section 34: to stipulate that post-supply discounts be granted only through GST credit notes, and that Section 34 explicitly reference Section 15(3)(b). This alignment would ensure automatic ITC reversal by the recipient whenever a credit note is issued for such discounts.

Though the withdrawal of the circular reflects a deliberate policy shift toward simplified compliance and self-certification, however, these recommendations will take effect only once enacted through the forthcoming Finance Act. Until then, Section 15(3)(b)(ii) of the CGST Act continues to apply, although the procedural requirement for evidencing compliance has been withdrawn.

This transitional period has effectively created a procedural vacuum in relation to verification of compliance under Section 15(3)(b)(ii) of the CGST Act. While the substantive obligation on the recipient to reverse the input tax credit (ITC) corresponding to post-supply discounts continues to remain in force, there is presently no statutory or prescribed mechanism for suppliers or tax authorities to verify such reversal.

Accordingly, taxpayers — both suppliers and recipients — would be well advised to maintain contemporaneous internal records, including reconciliations, correspondence, and accounting trails, evidencing that the requisite ITC reversal has been duly effected, in order to substantiate compliance in the course of any departmental audit or scrutiny.

It also remains uncertain whether the forthcoming amendment to Section 15(3)(b) will continue to embed an express condition requiring ITC reversal by the recipient. Should the legislative text retain such requirement, it is anticipated that the CBIC may issue further operational and compliance guidance or system-based verification protocols delineating the manner of establishing compliance, in lieu of the certificate/undertaking mechanism withdrawn vide Circular No. 253/10/2025-GST.