Client action on received FoC materials

Hi Raju,

Regarding GST treatment on Free of Cost (FoC) materials received and the supplier issuing a credit note:

1. GST on Free of Cost Goods:

• If goods are supplied free of cost but form part of the same supply or sale transaction, the value of such goods is included in the taxable value.

• In other words, the GST is payable on the full value of goods, including any free goods given to the buyer.

• However, if the supplier issues a credit note for the value of free goods, it indicates a reduction in the taxable value originally declared.

2. Supplier raising Credit Note:

• When the supplier raises a credit note for the FoC goods, they are essentially reducing the taxable valuedeclared earlier in their GSTR-1.

• This means the supplier is correcting their output tax liability by excluding the FoC goods from their declared taxable supplies.

3. Your (Recipient’s) obligations:

• If you are a registered person and have already taken ITC (Input Tax Credit) on the original invoice including the FoC goods, you need to reverse ITC on the value of free goods for which the supplier issued a credit note.

• You should also mention the credit note in your GSTR-2 (if applicable), which reconciles your ITC with supplier's outward supplies.

• In GST returns, ensure that your input tax credit claims are aligned with supplier’s revised invoice and credit note.

4. Summary:

• Supplier adjusts taxable value through a credit note.

• You should reverse ITC if already claimed on free goods.

• Reflect credit note details in your GST returns to maintain reconciliation.

Provisions:

• Section 15 of CGST Act (Valuation) requires inclusion of free goods in the value unless separately billed or excluded.

• Rules related to Credit/Debit Notes under GST Rules.