Free of Cost(FOC)supply in Pharma Co.

The issue arises on 2 counts -

1. ITC reversal u/s 17(5)(h) - disposal or write off by way of gift or free sample; or

2. Outward supply - Section 7 r/w Schedule I clause 1 - Deemed supply - without consideration - when business asset is permanently transferred where ITC has been claimed. 

In your example it is neither a gift or free sample. So Section 17(5) does not attract. 

The goods given as FOC, is essence are covered in the cost of the 10 products being sold, therefore, if this is the case, no additional liability and no ITC reversal would apply. 

When 2 goods being sold as FOC are different from the 10 goods, then concept of mixed/composite supply would get attracted.

You may refer Circular 92/0219-CGST.  Where the values are high, and transactions are complex suggest to obtain an expert opinion in this regard as there are certain risks/ambiguities in such area.

You may reach me on my email akshay @ hiregange.com