CBIC issues new circular clarifying doubts related to treatment of sales promotion schemes under GST.
The Central Board of Indirect taxation and customs has issued clarifications on treatment of various sales promotion scheme’s under Circular No. 92/11/2019 dtd.7th March 2019. Circular provides the following clarification:
a) Free samples and gifts: The Board highlighted and reiterated that the certain practises in the industry require supply of samples etc. Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as “supply‟ under GST. The circular exempts taxability of the same . Further the board also clarified ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without
any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of „supply‟ on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.
b) Buy 1 get 1 free: The Board also issued clarification on taxability on 1+1 schemes run by various business. The circular reads : Goods or services which are supplied free of cost (without any consideration) shall not be treated as „supply‟ under GST (except in case of activities mentioned in Schedule I of the said Act). It may appear at first glance that in case of offers like „Buy One, Get One Free‟, one item is being „supplied free of cost‟ without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the said Act.
c) Treatment of Discounts: The board extensively clarified in the circular that the treatment of volume discounts and discounts offered to customers shall be done in a particular way. They shall be excluded while determining the value of supply.
The discounts offered by the suppliers to customers (including staggered discount under “Buy more, save more‟ scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier.
It is further clarified that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts.