CBIC Circular 212 – A cumbersome remedy?


Offering discounts to recipients is an age-old tradition prevalent in the Indian trade system. Further, such discounts can be broadly classified into (a) Pre-Supply discounts (ie. Discounts offered at the time of supply) and (b) Post-Supply discounts. Pre-supply discounts are reflected in the Tax Invoice itself whereas post-supply discounts are generally offered by way of credit notes.  Right from the VAT/Sales Tax era Government has always been soft on Pre-supply discounts, whereas post-supply discounts have always been under the scanner of the authorities. Even GST law has special provisions pertaining to post-supply discounts. Experience suggests that GST Departmental authorities have rejected claims of post-supply discounts during departmental proceedings and many taxpayers were served demand orders calling upon them to pay GST on such discounts along with interest and in a few cases even penalties.

Relevant legal provisions for post-supply discounts

Section 15(3) CGST/relevant State GST Act (hereinafter referred to as “Act”) specifies that the value of supply shall exclude post-supply discount if :

  • such post-supply discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
  • input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

It is highlighted that unless 3(three) conditions enumerated above are fulfilled reduction on account of post-supply discount is not allowed from the value of supply.

It is apposite to highlight that Section 15(3) and Section 34 of the Act are interconnected. Subject to the fulfillment of conditions prescribed in Section 34(1) of the Act taxpayer may issue GST credit notes. Such GST credit notes thereafter are required to be reported in terms of Section 34(2) of the Act. In addition, such GST Credit notes shall also contain mandatory contents prescribed in Rule 53(1A).  In addition to aforesaid compliances in case credit notes pertain to post-supply discounts taxpayers are mandatorily required to fulfill conditions listed in Section 15(3) of the Act to stand eligible to reduce the value of post-supply discounts from the taxable value.

Emphasis is further invited to proviso to section 34(2) of the Act which stipulates that no reduction in output tax liability shall be permitted in the hands of the supplier if the incidence of tax and interest on such supply has been passed on to any other person. Explanation to Rule 89(2) further provides that where the amount of tax has been recovered from the recipient, it shall be deemed that the incidence of tax has been passed on to the ultimate consumer. Section 49(9) of the Act provides that every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both. 

In terms of Section 34 of the Act, it is therefore imperative on the part of the supplier to demonstrate that the incidence of tax has not been passed on before availing any reduction in output tax liability on account of GST credit notes.  Further in the case of post-supply discount Section 15(3) of the Act also comes into play and unless the supplier proves that the corresponding ITC has been reversed by the recipient, no reduction in value of taxable supply/tax is allowed.

It is also an accepted fact that neither the supplier nor GST authorities have any full-proof mechanism on the common portal to verify whether the input tax credit (hereinafter “ITC”) attributable to the said post-supply discount has been appropriately reversed by the recipients in their GSTR-3B and/or DRC-03. GST authorities relying on wordings of Section 15(3) were taking a position that the requirement to demonstrate reversal of ITC by the recipient of the supply is a mandatory condition, failing which suppliers were denied a reduction in the value of supply on account post-supply discount and such post-supply discounts were made liable to GST. It is a double whammy for the supplier as applicable GST was effectively never collected from the recipient in the first place and thereafter suppliers are called upon to pay GST from their pocket in addition to facing other consequences. 

Mechanism offered by CBIC Circular

To ensure compliance with Section 15(3) of the Act and in the absence of a mechanism at the GST portal,  CBIC Circular No.-212/6/2024-GST dated 26th June 2024 (hereinafter “CBIC Circular”) provides that the supplier may procure a certificate from the recipient of the supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that the recipient has made the required proportionate reversal of ITC (for the sake of brevity said attestation is hereinafter referred to as “CA certificate”).

CBIC circular further prescribes mandatory contents of the CA certificate viz. (a) details of the post-supply credit notes, (b) the details of the relevant invoice number against which the said credit note has been issued, and (c) the details of the amount of ITC reversal in respect of each of the said credit notes along with the details of the FORM GST DRC-03/return/any other relevant document through which such reversal of ITC has been made by the recipient. Further such certificate shall mandatorily carry UDIN (Unique Document Identification Number).

Declaration from the Supplier instead of CA Certificate

Circular further provides that in cases, where the amount of tax (CGST + SGST + IGST + Compensation cess, if any) involved in the discount given by the supplier to a recipient through credit notes in a financial year does not exceed Rs 5,00,000 (Rupees five lakhs only), then instead of CA certificate, the said supplier may procure an undertaking/ declaration from the said recipient that the ITC attributable to such post-supply discount has been reversed by him (for the sake of brevity hereinafter referred to as “Declaration”). Contents of such declaration are the same as prescribed for CA certificate.

Shortcomings in CBIC Circular

On one hand, CBIC circular candidly accepts the fact that the GST portal as of today, does not have the necessary mechanism to ensure compliance with the requirement of Section 15(3) of the Act. On another hand, CBIC has burdened suppliers with the requirement to procure numerous certificates and declarations in respect of post-supply discounts GST Credit notes even for the past periods. Organizing such documentation for 7(seven) long years will be a task in itself for the suppliers. In a few cases, the recipient might have closed their business or shifted their place of business, in such a situation probability of procuring such documentation is almost NIL.

Consider a hypothetical (but not uncommon) situation viz. GST credit note involving a small tax (CGST + SGST + IGST + Compensation cess) of say Rs. only 1000, even for such a trivial reduction in the value of tax supplier will now have to organize a declaration from the recipient as no discretion is granted to the GST authorities to waive documentation requirements in deserving/low-value cases. Furthermore, Instructions given in the CBIC circular are binding upon the tax authorities.  It is not out of place to mention that the GST law does not mandate the recipient to provide CA certificate/declaration and therefore supplier shall always remain at the mercy of the recipient to justify the reduction in value on account of the post-supply discount.

Technical challenges likely to be faced by CAs while issuing Certificates

Though the CA Certificate is a tried and tested remedy for the government and the CA profession has always been thankful for the Government’s trust in the fraternity, at the same time, CAs are likely to face a few challenges while carrying out attestation in this regard. A few of such challenges are briefly narrated hereunder.

  • Prior to issuance of CBIC Circular No. 170/02/2022-GST dated 6th July 2022 varied practices were followed by the taxpayers in respect of ITC involved in credit notes. Experience suggests that the majority of taxpayers were availing Net ITC (ie ITC are availed after adjusting ITC involved in credit notes) and such net figures were reported in GSTR-3B. On a practical consideration, availment of Net ITC is equivalent to availment of Gross ITC and reversal of applicable ITC, however, such practicalities may not have much relevance in disciplinary/judicial proceedings. Further as on the day, even GST portal reports Net ITC in Table 4(A)(5) of GSTR-3B and there is no requirement to show ITC reversal on account of credit note separately in Table 4B of GSTR-3B. Given this fact, CAs are likely to face challenges in collecting sufficient evidence to support their attestation responsibilities.
  • Many times, it is observed that there exists a timing difference between the issuance of credit notes by the supplier and its acceptance/disclosure in GSTR-3B by the recipients. Quite likely such timing difference may spread across 2(Two) financial years also. Issuing a CA certificate in such a situation may be a herculean task and may not be worth the reward, if there is any.
  • In many sizeable organizations there is a considerable gap between the occurrence of transactions and their recording in books of accounts as the invoices/transaction approval process runs through various hands. Pending recording of transaction in books of accounts and to comply with CBIC Circular No. 170/02/2022-GST dated 6th July 2022 such organization therefore temporarily avails such ITC and simultaneously reverses such ITC in the same GSTR-3B. Subsequently, when transactions are approved corresponding ITC is re-availed in GSTR-3B with appropriate disclosure. CA certificate to substantiate post-supply discounts in such a complex situation may call for an examination of detailed records and a high degree of professional judgment.
  • It is a matter of public knowledge that an E-invoice can be cancelled only within 24 hours of its issuance. For varied trade reasons, the recipient quite often refuses to accept the original E-invoice and subsequently prevails upon the supplier to issue a fresh E-invoice on a subsequent date. In such a situation supplier is forced to nullify the original E-invoice by the issuance of a credit note. In such an eventuality hope of getting any declaration/CA certificate from the recipient is virtually NIL and CBIC circular has not dealt with such real life situation.

Needless to say, while carrying out the attestation function CAs will have to pay due attention to the provisions of the Act in addition to ICAI Guidance Note on “Reports or Certificates for Special Purposes”.

Unfounded fear of Authorities insisting on CA certificate for other types of Credit Notes

The wording of the CBIC circular aptly restricts the requirement of certificate/declaration only to post-supply discounts, however, there is a growing fear that authorities drawing an analogy from the CBIC Circular may extend the requirement of CA certificate to other types of credit notes (other than a post-supply discount) as well. It is emphasized that Section 34 of the Act does not contain any provision to mandatorily demonstrate ITC reversal by the recipient, therefore even otherwise any demand for CA certificate/declaration in respect of other types of credit notes may not align with GST law.

Whether mechanism offered by CBIC Circular can be dispensed with for post-supply discounts offered after 1st January 2022?

Post 1st January 2022, Section 16(2aa) of the Act is made operational. Further with the introduction of GSTR-2B and GST-DRC-01C, GST authorities as well as the Portal are keeping a close tab on ITC availed by the recipient in GSTR-3B. The author therefore believes that the humongous documentation requirements mandated by the CBIC Circular are an avoidable burden for the supplier and run contrary to the stated intention of facilitating ease of doing business.

Is any fine-tuning required between Rule 89(2) and CBIC Circular?

Minute attention is invited to Rule 89(2)(l) wherein barring a few exceptions as mentioned therein, a declaration to the effect that the incidence of tax, interest, or any other amount claimed as refund has not been passed on to any other person shall be submitted by the refund applicant (ie supplier), in a case where the amount of refund claimed does not exceed two lakh rupees:

Further Rule 89(2)(m) insists on CA/CMA certificate to the effect that the incidence of tax, interest or any other amount claimed as a refund has not been passed on by the supplier to any other person, in a case where the amount of refund claimed exceeds two lakh rupees.

Apparently, aforesaid rules owe their origin to Section 34 of the Act and has no nexus to Section 15 of the Act. However, it is submitted that for uniformity and ease of compliance limits laid down in Rule 89(2) (supra) shall be realigned with higher limits prescribed in CBIC Circular.

To Sum up

The stated intention behind the CBIC Circular is to provide a suitable mechanism to ensure compliance with the GST law. However, it would be in the fitness of things if CBIC circular had given some concession for low tax-value credit notes. The taxpayer’s demand for such concession is not out of place as in the past Maharashtra VAT department has granted concession in respect of a small value J1/J2 mismatch and such a small mismatch was allowed without insisting on any online confirmation from the counterparty. One can only hope gullible suppliers are not forced to organize humongous documentation for low tax-value post-supply credit notes for past periods.

Call to action

Taxpayers are advised to follow the below steps to ensure compliance with the CBIC Circular

  • Preparation of listing of post-supply discounts offered by way of credit notes in respect of past unassessed/unaudited periods.
  • Depending upon the value of tax involved in a financial year organise a certificate or a declaration for post-supply discounts.
  • Further as a precautionary measure henceforth supplier may choose to categorically refer to the CBIC Circular in every GST credit note and prominently highlight the responsibilities of the recipients viz. (a) reversal/reduction of corresponding ITC in GSTR-3B and (b) issuance of certificate/declaration on a year-end basis. However, such disclosure may not save the supplier from the compliances burdened by CBIC circular.

Parting Note

One thought looming over my mind is whether it is fair on the part of CBIC to burden taxpayers for the shortcomings of the GST portal. Quickly another thought crosses my mind and reminds me that it is wrong to expect fairness in taxation.


The views expressed herein are strictly personal to the author and should not be construed as advice/ legal opinion. The contents of this article are based on the interpretation of the facts, relevant legislation, rules, notifications, circulars, judgments/rulings, etc. on the date of publishing of this article.  One should not act upon the information in this article without obtaining specific professional advice. Author of this blog is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission pertaining to this article. Further, the said article is only for information and guidance purposes and should not be construed as any kind of advertisement or solicitation of work.



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