ITC on Purchase goods for Free distribution

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This discussion examines the eligibility of claiming Input Tax Credit (ITC) on goods purchased for free distribution to distributors. While some argue it's a business expense, Section 17(5)(h) of the CGST Act disallows ITC for gifts. However, the classification of free distribution as 'supply' is debatable, with a 2019 CBIC circular suggesting it may not be considered a supply, potentially impacting GST liability.

Ikramuddin Saifi

Ikramuddin Saifi (Querist)

28 July 2022 Dear Sir,
Can we claim ITC on Purchase of misc. goods for Free distribution to our distributors?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

28 July 2022 Yes, ITC can be claimed as it related to business.

CA Altamush Zafar

CA Altamush Zafar (Expert)

30 July 2022 A debatable issue since you will be distributing as gift. Section 17(5) does not allow ITC for gifts. Will depend on contractual terms with your distributors

Adv. Ravish Bhatt, ADIT, CIOT

Adv. Ravish Bhatt, ADIT, CIOT (Expert)

01 August 2022 I believe ITC could not be claimed as s.17(5)(h) of CGST Act, 2017 provides that for goods lost, stolen, destroyed, written off or disposed of by way of gift or fee samples ITC shall not be available. At the same time, free distribution may not be considered supply necessitating payment of GST. While the definition of supply suggests so, there is some specific circular from CBIC in 2019 that free sample distribution will not be considered “Supply”

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