The Synthetic & Rayon Textiles Export Promotion Council

CBIC clarifies various doubts related to treatment of sales promotion scheme under GST

Circular No.ES/412/2018-19                                                                       March 11, 2019

To: Members of the Council

Sub.: CBIC clarifies various doubts related to treatment of sales promotion scheme under GST

Dear Member,

This to inform you that CBIC has issued Circular No. 92/11/2019- GST dated 7th March, 2019 clarifying various doubts on issues raised in respect of sales promotion schemes under GST. The Circular clarifies doubts on points listed below :

(A) Free samples and gifts:

Many pharmaceutical companies provide samples to their stockists, dealers etc. without charging any consideration in order to promote business.

  • If free sample is distributed without any consideration, then it will not qualify as supply under GST because as per section 7(1)(a) any transaction will be qualified as supply if consideration is charged for that (except in case of activities mentioned in Schedule I of the said Act). Hence, GST will not be charged on that supply.

  • Further, as per section 17 (5) Input tax credit is not allowed on the item which is distributed as a free sample and gift.

(B) Buy one get one free offer:

Companies offer Schemes like ‘Buy One, Get One free’ in order to promote sales

  • When goods are being supplied as Buy one Get one free then it will be treated as supplying two goods for the price of one and taxability of such supply will be determined on the basis of nature of supply ( Mixed supply/composite supply) and rate shall be determined on the basis of section 8 of CGST Act.

  • ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.in this case.

(C) Discounts including ‘Buy more, save more’ offers:

The supplier offers discount to his customers (increase in discount rate with increase in purchase volume). For example – Get 10% discount for purchases above Rs.5000/-, 20% discount for purchases above Rs.10,000/- and 30% discount for purchases above Rs.20,000/-.

  • Discount offered by supplier to customers shall be excluded to determine the value of supply provided they satisfy the parameters laid down u/s 15(3).

  • 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.

(D) Secondary Discounts

Discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s. A supplies 10000 packets of biscuits to M/s. B at Rs.10/- per packet. Afterwards M/s. A re-values it at Rs. 9/- per packet. Subsequently, M/s.A issues credit note to M/s. B for Rs.1/- per packet.

  • Discounts which are not known at the time of supply and offered after the supply. For Example Re-value of item post sales.

  • Secondary discounts cannot be excluded for calculation of value of supply because these are not known for valuation of supply as not complying with Section 15(3)(b) of CGST Act.

  • ITC availability provision shall be same in such case.

Summary of the Circular is as follows:

Sr. No.

Details of Transaction

Impact on Valuation

Impact on ITC

1

Free Samples & Gifts

No supply in absence of consideration except in situations covered in Schedule- I

No ITC will be available under Section 17(5)(h). However, ITC will be available in case transaction covered in Schedule- I.

 

2

Buy one get one free offer

Either will be composite or Mixed Supply

 

ITC will be available.

3

Discounts including Buy more, save more offers- Referred as Volume discounts

Such discounts will be excluded from valuation subject to satisfaction of parameters of Section 15(3).

 

ITC will be available on the valuation as per Section 15.

4

Secondary Discounts- Not known at the time of supply

Financial/ commercial Credit Notes can be raised as credit note u/s 34 cannot be issued in these situations.

 

Secondary discounts shall not be excluded while determining the value of supply.

 

ITC will be available on full value i.e. no impact of Financial/ commercial Credit Notes on ITC.

For more information, members may kindly refer to the above Circular.                          

Thanking you,               

Yours faithfully,

S. BALARAJU
EXECUTIVE DIRECTOR