Demo Goods are Distinguished from Physicians Samples - No ITC Reversal Required

The Kerala AAR in the matter ofIn Re: M/s Dynamic Techno Medicals Private Limited - 2025 (9) TMI 1053 - AUTHORITY FOR ADVANCE RULING GOODS, KERALA held that products issued for demonstration by Product Specialists for marketing purposes cannot be treated at par with “Physicians Samples - Not for Sale” under GST, and no reversal of Input Tax Credit (ITC) is warranted on such demo goods.

Facts:

Ms. Dynamic Techno Medicals Private Limited ('the Applicant') is engaged in the manufacture and marketing of various health aid products.

The Applicant issues demo products to Product Specialists for marketing and demonstration to prospective customers at hospitals, clinics, and other medical forums. These demo units are not sold but used repeatedly; once worn out, they are returned as scrap, on which applicable GST is paid.

The Applicant contended that demo products should not be equated with Physicians Samples, which involve free distribution and permanent transfer of ownership, and hence ITC reversal should not be required. The Applicant approached the Authority for Advance Ruling seeking a declaratory ruling on whether demo goods are akin to Physicians Samples for GST procedures and whether ITC reversal is applicable.

Issues:

• Whether products issued for demonstration by Product Specialists are to be treated at par with ‘Physicians Samples - Not for Sale’ for GST procedural compliance.
• Whether any reversal of Input Tax Credit is to be issued for the purpose of demonstration by the product specialists, by treating it at par with issue of physician sample?

Held:

The Kerala AAR in In Re: M/s Dynamic Techno Medicals Private Limited - 2025 (9) TMI 1053 - AUTHORITY FOR ADVANCE RULING GOODS, KERALAheld as under:

• Observed that, Physicians Samples involve permanent transfer of ownership to medical practitioners without consideration, falling under blocked credit under Section 17(5)(h) of the CGST Act.
• Noted that, demo goods are not permanently transferred or gifted and ownership remains with the Applicant.
• Held that, demo goods are provided exclusively for demonstration and are disposed of as scrap after use, on payment of GST.
• Noted the distinction between demo goods from Physicians Samples factually and legally, emphasizing no disposal or transfer of title at issuance.
• Held that, the issuance of demo goods constitutes legitimate business use and ITC reversal is not warranted.
• Held that, demo goods are not subject to reversal of ITC as they remain business assets until scrapped.
• Held that, the demo products issued to Product Specialists for demonstration purposes are not to be treated as Physicians Samples - Not for Sale for the purpose of GST procedural compliance, and accordingly, no reversal of Input Tax Credit is required for such demo goods.

Our Comments:

This ruling aligns with GST principles where Input Tax Credit is admissible only on goods used for business purposes and blocked on goods disposed of free of cost such as Physicians Samples. The AAR distinguished demo goods from Physicians Samples by focusing on the absence of transfer of title and the business intent.

It relies on Section 17(5)(h)  CGST Act 2017, which specifies reversal of ITC for free samples (gifts) but not for goods retained in business assets and ultimately scrapped on payment of GST. Further the CBIC Circular No. 92/11/2019-GST dated March 7, 2019 issued clarification on various doubts related to treatment of sales promotion schemes under GST.

Relevant Provisions:

Section 17(5)(h) of the CGST Act, 2017:

'17. Apportionment of credit and blocked credits.-

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; ..”

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