Supply done Free Of Cost in Goods and Service Tax (GST)

Article from https://babatax.com

Free of cost dilemma solved: We all love free stuff. I mean who doesn’t want. For instance,

1. a shoe at Rs.250, or
2. selling a shoe of worth Rs.500 at 50% discount i.e. at Rs.250.

Most of the People will buy the (2). But the question arises at what we have to pay GST at Rs. 500 or at Rs. 250

The Promotional schemes are employed as an effective sales strategy to attract the customer for buying their products. Also used for the purpose of testing, sampling, market research, trial etc. from which there is no generation of revenue for the supplier.

Some of the most common examples of sales promotions are:

• Flash Sales
• Buy One, Get One Fee
• Free Gifts
• Flat Discounts
• Giveaways
• Free Samples
• Volume Discounts

Section 17(5) of the CGST Act, 2017 limits the input credit on goods which are issued as free samples. It is clear that when the credit availed goods are offered as free samples, the credit relating such goods would not be allowed.

However, there is a doubt that arises is whether the restriction is valid on the free sample of finished products which are manufactured out of input tax credit availed inputs too?

Many were in doubt on the issues raised with respect to tax treatment of sales promotion schemes under GST. To ensure uniformity in the implementation of the law across the field formations, the Government issued circular to clarify tax treatment of promotional schemes.

The circular No. 92/11/2019 says, it has been noticed that there are several promotional schemes which are offered by taxable persons to increase sales volume and to attract new customers for their products.

Some of these schemes have been examined and clarification on the aspects of taxability, valuation, availability of Input Tax Credit (ITC) in the hands of the supplier in relation to the said schemes are detailed here under

1. Free samples and gifts:

It is a common practice among certain sections of trade and industry, such as, pharmaceutical companies which often provide drug samples to their stockists, dealers, medical practitioners, etc. without charging any consideration. As per section 7(1)(a) of the CGST Act, the expression "supply" includes

all forms of supply of goods or services or both such as

• sale,
• transfer,
• barter,
• exchange,
• licence,
• rental,
• lease
• or disposal

made or agreed to be made for a consideration by a person in the course or furtherance of business.

Therefore, the goods or services or both which are supplied free of cost (without any consideration) shall not be treated as "supply? under GST (except in case of activities mentioned in Schedule I of the said Act).

Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as "supply? under GST, except where the activity falls within the ambit of Schedule I of the said Act.

Further, section 17(5)(h) of the said Act provides that ITC shall not be available in respect of goods

• lost,
• stolen,
• destroyed,
• written off or
• disposed of by way of
  • gift or
  • free samples.

Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration.

However, where the activity of distribution of gifts or free samples falls within the scope of "supply? on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

2. Buy one get one free offer:3. Discounts including ‘Buy more, save more’ offers:4. Secondary DiscountsCheck the full articlehttps://babatax.com/supply-for-free-of-cost/

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