Avoid GST Credit Note — Make Commercial Credit Note – Advisory

Why businesses should prefer commercial credit notes over GST credit notes after the Sept 2025 GST circular

In the post‑sale discount era under GST, one of the most sensitive decisions for businesses is whether to issue a commercial (financial) credit note or a GST credit note under Section 34 of the CGST Act. The Central Board of Indirect Taxes and Customs (CBIC), through Circular No. 251/08/2025‑GST dated 12 September 2025, has clarified several long‑standing doubts around post‑sale discounts and credit notes, and this clarification has a direct impact on how suppliers and recipients should structure their documentation.​

Put simply, where businesses want to pass on discounts without disturbing the tax paid to the government and without triggering Input Tax Credit (ITC) reversals at the buyer’s end, commercial/financial credit notes are often the safer and more practical tool than GST credit notes. This article explains the background, the key clarifications in the circular, and why businesses should consciously move towards using commercial credit notes “as much as possible” and reserve GST credit notes only for clearly eligible cases.​

Background: post‑sale discounts and confusion under GST

Post‑sale or secondary discounts are discounts given after the original tax invoice has been issued, such as year‑end scheme discounts, volume rebates, and rate protection adjustments. Under the basic GST law, Section 15(3)(b) and Section 34 created confusion about whether such discounts must always be linked to the original invoice and whether GST must be adjusted via a credit note, with corresponding ITC reversal by the buyer.​

As a result, industry followed two very different practices. Some suppliers issued GST credit notes with GST component, reduced their output tax, and insisted that buyers reverse ITC; others issued pure commercial or financial credit notes without GST, leaving the original tax invoice and ITC intact. Different departmental interpretations and audit objections added to the uncertainty, particularly around whether recipients had to reverse ITC when they received post‑sale discounts without GST adjustments.​

Key clarifications in Circular No. 251/08/2025‑GST

Circular No. 251/08/2025‑GST, issued on 12 September 2025, addresses several of these disputes. Among the important points highlighted in various professional analyses are:​

• If the supplier issues a financial/commercial credit note without reducing the taxable value or GST on the original supply, the buyer is not required to reverse the ITC merely because of that post‑sale discount.​

• The government’s revenue is not impacted where the supplier does not claim any reduction of output tax, so ITC with the recipient can legitimately remain undisturbed.​

Commentaries on this circular from GST‑focused portals emphasize that, till the proposed amendments to Section 15(3)(b) and Section 34 are implemented, financial credit notes remain the preferred instrument for discounts that were not pre‑agreed in the original contract. Proposed changes discussed in the 56th GST Council meeting aim to formally allow post‑sale discounts via Section 34 credit notes where corresponding ITC is reversed, but until that is law, the circular’s guidance is the operative standard.​

Commercial vs GST credit notes: practical differences

For day‑to‑day business decisions, the distinction is more than just terminology. A commercial credit note is essentially a financial adjustment between parties, while a GST credit note under Section 34 is both a commercial and a tax adjustment tool.​

Key practical aspects drawn from professional commentary include:​

• A commercial credit note does not alter the taxable value or GST reported in GSTR‑1 or GSTR‑3B; the original invoice remains untouched in GST returns.

• A GST credit note reduces the taxable value and GST liability for the supplier (subject to conditions), but obliges the recipient to reverse proportionate ITC to maintain symmetry.

This means that a GST credit note is “costly” for the buyer in terms of ITC, and can trigger reconciliation issues, disputes, and audit queries if not handled precisely as per law. In contrast, commercial credit notes, when used correctly, allow both parties to settle commercial claims without disturbing GST already discharged and ITC already availed.​

Why businesses should prefer commercial credit notes

Given the clarifications in the September 2025 circular and the general direction of GST administration, there are several strong reasons for businesses to lean towards commercial credit notes wherever legally permissible.​

First, they preserve ITC at the recipient’s end in genuine post‑sale discount situations where the supplier does not seek reduction of output tax. This keeps dealers and distributors financially neutral on GST, making discount schemes more attractive and less contentious. Second, they reduce the risk of future disputes around ITC reversal, mismatches in GSTR‑2B and GSTR‑3B, and retrospective demands arising out of departmental audits.​

Third, commercial credit notes are operationally simpler for both accounting and compliance teams. There is no need for complex invoice‑wise ITC reversal by customers, and no need for suppliers to track lower taxable value and GST for each scheme‑related credit note in returns. This is particularly relevant for FMCG, automotive, pharma, and other sectors where high‑volume distributor schemes are routine.​

When GST credit notes should still be used

The message is not that GST credit notes should never be used, but that they should be used carefully and only when the legal conditions are clearly satisfied. Where discounts are pre‑agreed in the contract or invoice, and conditions of Section 15(3)(b) are fulfilled, the supplier may wish to reduce taxable value and GST via a Section 34 credit note, in which case proportionate ITC reversal by the recipient is expected.​

Professional summaries of the circular point out that the law is evolving and that the proposed amendments, once effective, will give a clearer statutory base for post‑sale discount credit notes with ITC reversal. Until then, for discounts not pre‑agreed or where ITC neutrality for the buyer is commercially important, financial or commercial credit notes remain the more conservative route.​

Action points for businesses

In light of the September 2025 circular and ongoing reforms, businesses should re‑examine their credit note policies. Some practical steps suggested by expert commentaries are:​

• Classify all discount schemes into pre‑agreed and post‑sale/conditional, and frame rules on when to use commercial versus GST credit notes.

• Update ERP and accounting workflows to default to commercial/financial credit notes for most post‑sale discounts where supplier does not seek GST reduction.

• Train sales, accounts, and tax teams on the distinction and on the ITC implications for trading partners.

By consciously preferring commercial credit notes and limiting GST credit notes to clear, legally supported situations, businesses can protect ITC, reduce litigation risk, and align with the spirit of the September 2025 clarifications.​

Some links to other websites on this news and discussion topic

• Official GST (CBIC) circular PDF – Circular No. 251/08/2025‑GST dated 12‑09‑2025 (hosted copy of the circular):
  https://taxo.online/wp-content/uploads/2025/09/Cir251-13092025.pdf​

• Taxguru technical analysis – Example of a detailed post‑sale discount/credit note analysis :
  https://taxguru.in/goods-and-service-tax/cbic-circular-251-08-2025-clarifies-gst-treatment-post-sale-discounts.html  ​

• Article on post‑sale discounts/credit notes – Example:
  https://www.gstdost.com/live/blog-details/no-gst-reversal-on-post-sale-discounts-via-financial-credit-notes​

• Other CA firm commentary – :
  https://apmhconsulting.com/blogs/important-announcement-on-cbic-circular-no-251-08-2025-gst-ending-confusion-on-post-sale-discounts

more details on associate website : www.mlgassociates.in

Is Your Factory working like Terminal  T3, New Delhi ?

Mastering Traceability with Finsys ERP

Indeed, in the high-stakes world of manufacturing, efficiency is not just a goal—it is a survival requirement. Every day, factory owners face a mountain of complexity. Specifically, they deal with thousands of raw materials, shifting production schedules, and the constant pressure to reduce waste. Factory Traceability with Finsys ERP

Recently, Sangeet Gupta, a leader in the ERP space, proposed a fascinating comparison on Factory Traceability with Finsys ERP. He suggests that your factory is like a major international airport terminal, such as Delhi’s T3. Admittedly, at first glance, a factory floor and an airport terminal might seem worlds apart. However, once you look at the flow of “units”—whether they are passengers or plastic pellets—the similarities are striking.

In this guide, we will explore why the “Terminal T3” mindset is the secret to manufacturing excellence. Furthermore, we will show how Finsys ERP provides the “radar” you need to track every movement.

Part 1: The Airport Metaphor – Why Your Factory is a “Terminal”

First, think about the sheer scale of Delhi Terminal 3. Thousands of people enter every hour. Subsequently, they move from check-in to security, then to the lounge, and finally to their specific gate. Crucially, every single passenger is tracked. Consequently, the airport knows exactly which flight they are on and where their luggage is stored.

The Parallel to Your Factory

In the same way, in your factory, you aren’t moving people; you are moving item Codes.

• The Passengers: For instance, these are your Raw Materials (RM) like paper reels, chemical boxes, or plastic granules.

• The Movement: Just as passengers move through security, your materials move through machines.

• The Transformation: At the airport, a traveler becomes a passenger. Similarly, in your factory, RM becomes Work-in-Progress (WIP), which eventually transforms into Finished Goods (FG).

Ultimately, the core challenge remains the same: How do you ensure nothing gets lost in the crowd?

Part 2: The Chaos of “Invisible” Manufacturing

However, without a systematic tracking system, a factory can quickly become a “black hole.“

The Problem of Lost Material

For example, in many traditional factories, material enters the store, but its journey after that becomes invisible. You might know how much paper you bought. Nevertheless, do you know exactly which batch of paper was used for a specific client’s order?

If you cannot track the “change of form”—from RM to WIP to FG—you lose control over your costs. Consequently, this lack of Traceability leads to:

1. Material Leakage: Specifically, small amounts of material “disappearing” across shifts.

2. Quality Disputes: In fact, if a customer complains about a faulty batch, you won’t know which raw material caused the issue.

3. Inventory Mismatches: As a result, your books say you have 10 tons of material, but your floor is empty.

Part 3: The Pillars of Factory Traceability with Finsys ERP

Furthermore, Finsys ERP acts as the “Air Traffic Control” for your factory. It is built specifically for the MSME sector with a “Made in India” heart. Moreover, it ensures it understands the ground realities of Indian manufacturing.

1. Universal Barcoding

Initially, the first step to T3-level efficiency is ensuring every item has an identity. Whether it is a paper reel or a rubber mold, Finsys assigns a unique barcode upon inwarding.

• Immediate Inwarding: The moment material arrives at the gate, it is barcoded.

• Scan-Based Movement: In addition, material doesn’t move from the store to the floor without a scan. Therefore, this ensures the digital records match the physical reality.

2. The Power of the Job Card

In the Finsys system, a Job Card is like a passenger’s boarding pass. Specifically, it tells the material exactly where it needs to go.

• Moreover, each Job Card has its own barcode.

• As a result, it tracks which worker handled the material, which machine was used, and how much time the process took.

3. Real-Time WIP Tracking

Additionally, Finsys allows you to see your Work-in-Progress in real-time. Consequently, you no longer have to wait until the end of the month to do a “stock take.” Instead, you can see exactly what is “in the air” at any given second.

Part 4: Industry-Specific Impact

Notably, the beauty of the Finsys logic is that it is “Industry Agnostic.” For example, it works across various complex sectors:

• Plastic & Rubber Moulding: Specifically, track the life of your moulds and the exact consumption of granules.

• Electronics: Similarly, manage thousands of tiny components with precision.

• Air Conditioner Manufacturing: Moreover, coordinate complex assemblies where hundreds of parts must come together.

• Packaging & Printing: Lastly, track paper reels and slitting waste with zero errors.

Part 5: The Financial Benefit – From Loss to “Negligible”

Ultimately, the goal of implementing a T3-style system is to improve your bottom line. When your factory works with systematic logic, material loss drops to a “negligible” level.

Factory Traceability with Finsys ERP means Accountability = Profitability

Indeed, when every movement is barcoded, accountability is automatically created.

• For instance, workers know that the system is watching the material.

• Furthermore, managers can see which batch went “missing” and why.

As a result, the “culture of waste” disappears. As Sangeet Gupta notes, “Once you have accountability, solutions will naturally follow.“

Part 6: See the Future at PAMEX 2026

Ultimately, if you want to see this Terminal T3 efficiency in person, there is no better place than PAMEX 2026.

• Date: January 27 to January 30, 2026

• Venue: Bombay Exhibition Centre, Mumbai

In addition, Finsys has a long history of excellence at major exhibitions like Plastindia and India Corr Expo. At our stall, we will be demonstrating live barcode tracking and real-time dashboarding. Therefore, we can help you transform your messy spreadsheets into a single “Source of Truth.”

 Watch the Video for More Insight

To truly understand the energy behind the “Factory vs. Terminal T3” comparison, we highly recommend watching the full video by Sangeet Gupta. In this video, he walks through the terminal and explains the logic that can save your business millions.

Watch the Video Now: https://youtube.com/shorts/gs2gRic5Avc
Finsys Invites you to Pamex 2026 https://finsys.co.in/events/pamex-2026-mumbai-27-to-30-january-2026-bec

The implementation will cover the entire enterprise lifecycle, ensuring that no department operates in a silo:

• Purchase & Procurement: Leveraging automated re-order levels for high-value metals to ensure production never stops due to material shortages.

• Production Planning (PPC): Moving from manual scheduling to an Oracle-powered PPC engine that optimizes machine hours and artisan availability.

• Quality Assurance (QA): Implementing stringent QC checkpoints at the casting, finishing, and packaging stages to maintain the brand’s global reputation for excellence.

• Mobile MIS for Management: Providing the directors with real-time dashboards on their mobile phones. Whether they are at a trade fair in Frankfurt or a meeting in New York, they can monitor their plant’s production, dispatch status, and bank balances in real-time.

About the Client

Based in the “Brass City” of Moradabad, the client is a premier manufacturer and exporter of metalware, lighting, and home lifestyle products. With a commitment to social responsibility and sustainable manufacturing, they serve a global clientele of Tier-1 retailers and high-end design houses. Their integrated facility is one of the largest and most respected in the region.

About Finsys ERP

Finsys ERP is a leading Enterprise Resource Planning solution provider with over 32 years of experience and 850+ successful installations. Built on the powerful Oracle database, Finsys specializes in manufacturing sectors including Auto Components, Packaging, Plastic Moulding, and Metalware. Led by Chartered Accountants and Engineers, Finsys is dedicated to empowering Indian MSMEs with the tools to compete globally. To learn more about how Finsys is transforming the metalware industry, visit: www.finsys.co.in

Media Contact: Finsys ERP Press Office Email: Corporate[at]finsys.co.in Website: www.finsys.co.in

Pune Packaging Giant Selects Finsys ERP. Rigid Boxes, Mono Cartons, … why More and more companies select Finsys ERP

Apollo Pharmacy at T3….Importance of Minimum levels inventory

Imagine you are at an airport, miles away from the city, and you urgently need basic medicine for a sudden headache or an upset stomach. You rush to a pharmacy and found that the essential drugs are out of stock. How would you feel? Frustrated, certainly.

This simple scenario highlights a critical business principle: Perfection is non-negotiable for essential needs.

For a manufacturing unit, the maintenance department is exactly like that airport pharmacy. When a machine breaks down, you need a critical spare part—a specific oil, a ball bearing, or a component—right now. If your maintenance store fails to provide it, the entire production line stops. This is the ultimate cost of poor Maintenance Inventory Management.

Value/Necessity The criticality of safety stock in inventory management.

Strategic Role The strategic necessity of maintaining buffer inventory.

Goal/Impact Why reorder points are essential for supply chain continuity.

Concept The significance of stock-out prevention (SOP).

Operational Focus The vital role of threshold stock levels in avoiding disruption.

The Power of the Re-Order Level (ROL)

The first crucial lesson we learn is the necessity of a systematic Re-Order Level (ROL). Just as pharmacies keep stock based on typical flow and usage, your factory must do the same.

In the fast-paced MSME sector, you simply cannot afford to have inventory that is either excessive (leading to blocked capital) or short (leading to production halts).

Finsys ERP helps you maintain a ‘logical’ stock by calculating ROL based on reliable data:

By relying on Finsys’s data-driven inventory module, you transition from guesswork to precision, ensuring spare parts are available exactly when needed. This drastically minimises expensive downtime.

Establishing a Systematic & Accountable Process

A systematic process ensures that even if the item is in stock, you know exactly where it is and who is responsible for it.

Key Steps for a System-Driven Maintenance Store:

1. QR Code Integration: Use QR codes to tag and track every spare part. This eliminates the chaos of staff searching for items and ensures instant location and retrieval. Remember: If you have the stock but don’t know the shelf location, it’s as good as being out of stock.
2. Tracking Every Transaction is Vital: Many companies make the mistake of immediately issuing all parts to the maintenance department upon purchase. This leads to a total loss of visibility on what inventory they actually possess.
3. Treat Maintenance Store as a Sub-Store: Finsys ERP allows you to create a separate Maintenance Store. All the standard material handling processes must apply here too:

• • P.O. (Purchase Order)

  • Gate Entry

  • M.R.R. (Material Receipt Note)

  • Q.C. (Quality Check)

Just like your Production Store personnel, your Maintenance Store personnel must be fully accountable for the inventory they hold. The stock should remain in their digital inventory until it is actually consumed by the factory.

Elevate Your Factory’s Reliability

The world is becoming more systematic. To remain competitive, your factory must also function systematically. The lesson from the airport is clear: systematic operation is the foundation of reliability.

Finsys ERP empowers your maintenance department to move from being a “firefighting unit” to a reliable, profit-saving unit.

Don’t let costly machine downtime slow down your growth. Implement Finsys ERP Maintenance Module today and bring the Pharmacy’s systematic efficiency to your factory floor.

Watch our Video for better understanding.

https://youtube.com/shorts/2ozHL0ARcsw?si=c8H7ZlGlrPYcnZ2S

Follow our YouTube channel for more such Informative videos

https://www.youtube.com/@SangeetGuptaFinsysERPSoftware