Principal commissioner(GST) of Central Board of Indirect Taxes and Custom vide its letter dated 7th March 2019 has clarified the following issues:-
1. The issue of availability of ITC on Free Sample and Gifts distributed:
As per Section 7(1)(a) of CGST Act, 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 and furtherance of business. Free sample and gifts distributed to customers are not considered as supply as per Section 7 of the GST Act due to the absence of consideration.
Further as per section 17(5)(h) input tax credit by way of gifts free sample is not allowed.
It has been clarified by the CBIC that, ITC on free sample and gifts shall not be allowed as they are out of the scope of supply. However, where the activity of distribution of free sample comes under the scope of supply as covered under schedule 1 of CGST Act, ITC will be available.
2. Buy One Get One Free:
Companies offer a scheme of buying one product and getting one product free, these schemes are very common with FMCG companies. Sale of goods without consideration is out of the scope of supply as contemplated under section 7 of CGST Act. It appears on a glance that the other product is being sold free of cost in an independent supply, however, it is a part of composite or mixed supply with the original product as covered under section 8 of CGST act. Hence ITC on such goods will be available.
3. Discount Including "buy more, save more" offers:
Suppliers offer quantity discount as well as volume discounts to its customers. Such discounts are established in terms of an agreement entered into before the time of supply. These discounts are not duly recorded in the invoice as the actual amount of discount gets determined after the supply. It was clarified that such discounts are not to be included in the value of supply provided that conditions under Section 15(3) are satisfied.
4. Secondary Discounts:
Many suppliers offer discounts, post supplies by issuing credit notes under section 34 of CGST Act. Discount awarded via credit notes, post supply does not fulfill the conditions laid down as per section 15(3)(b), as there does not exist any agreement before the time of supply. However, it has been clarified that the value of supply will not include any discount awarded by the issuance of credit note under section 34 of CGST Act.
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