Analysis of treatment of sales promotion scheme under GST

 'Every business entities always aware about for increasing sale through sales promotion. There is a lot of scheme to promote the sale however the treatment of the sale promotion schemes under GST is very confusing and complex.

The problems and many industries related issues arises due to the provision contain in section 17(5)(h) of CGST Act 2017. 

As per sec 17(5)(h), business cannot take input tax credits in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

Accordingly, inputs tax credit over such goods which is used or disposed of by the way of gift or free sample should be reversed.

This created all of question for the business and all the sales promotion scheme comes under the scanner.

In this article I have tried to give enlighten on the issues raised in treatment of various sale promotion scheme such as applicability, taxability, input tax credit, valuation and etc.

1. Free samples and gifts

Since the consideration is an important element of the definition supply, therefore the samples which are supplied free of cost, without any consideration, do not qualify as “supply” under GST, except where the activity falls within the ambit of Schedule I of the said Act.

Further, clause (h) of sub-section (5) of section 17 of the said Act 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. However, where the activity of distribution of gifts or free samples falls within the scope of “supply” as per Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

2.Buy one get one free offer

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.

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 section 8 of the said Act. And, ITC shall be available to the supplier in relation to such supply.

3.Discounts including ‘Buy more, save more’ offers

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. Further, the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply.

4.Secondary Discounts

Value of supply shall not include any discount by way of issuance of credit note(s), except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied. There is no impact on availability or otherwise of ITC in the hands of supplier.

(Mr. Sandeep Rawat has vast experience & knowledge in dealing with Direct and Indirect Taxation. He can be reached at [email protected])