FoC sales in GST

Hi

In the case of goods supplied as free samples to customers or physicians (in the pharmaceutical sector), the law under Section 17(5)(h) of CGST Act is clear as they are free samples thus ITC shall be reversed. The rationale behind this provision is that these samples are free and have zero value attached to it, on which no tax can be levied and hence, no credit shall be provided. Further, no output liability would arose on such transfer.

Other marketing schemes such as buy one, get one free or buy more and save more are used by various business to boost its sales. CBIC’s FAQ clarifies the charge on GST on such free supplies. It states that the value of free good is to be considered as trade discount where offering two goods at the same price is equal to offering one good at 50% discount. Thus, the invoice value would include both goods and GST will be charged on the invoice value of supply. Therefore, need for reversing the ITC under Section 17 will not arise in such a situation. Further, such goods are considered as supplies and not gifts as they are given for free to incentivize buyers to buy goods of the company and thus, ITC can be claimed on it.