2019 (6) TMI 1357 - AAR - GST

GST Exemption for Extra Cigarette Packs under Single Supply Transaction

In Re: M/s. Golden Tobacco Ltd.

The extra packs of cigarettes, offered as part of a quantity discount without additional consideration, are not individually leviable to GST. They are ... Levy of GST - Supply of extra packs of Cigarettes without recovering any additional cost from the Distributors - Promotional scheme for distributors - taxable value attributed to such extra packs of Cigarettes for of GST - exempt supplies or free samples - Section 17 (2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17 (5) of the CGST Act, 2017. HELD THAT:- Appellant are contemplating a promotion scheme for the clients/distributors wherein they intend to supply additional packs of cigarettes along with regular supply of cigarettes of a particular quantity, without receiving any additional consideration for the additional packs. Applicability of Circular No. 92/11/2019-GST dated 07.03.2019 issued vide F. No. 20/16/04/2018-GST - HELD THAT:- The Circular is clearly applicable to the facts of the subject application. From a reading of the above Circular and the facts of the matter i.e. the facts of the promotion scheme proposed by the applicant we find that their scheme of Buy 100 Get 10 free OR Buy 1000 Get 150 free” is clearly covered by Para B of the said Circular. Hence in such cases it will not be 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. In the case of Buy 100 Get 10 free it will be 2 individual supplies, each of 100 packs and 10 packs for the price of 100 packs. In such a case 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 - Further, ITC shall also 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. The situation mentioned at Para(C) of the Circular mentions situations whether value discounts are envisaged and therefore will not be applicable in the subject case where value discounts are not contemplated - The situation mentioned at Para(D) of the Circular mentions situations where discounts are not known at the time of supply or where discounts are offered after the supply is over. In the subject case the discounts are known well before the supply is effected. Thus the extra packs of Cigarettes will not be leviable to GST - The extra packs of cigarettes will not be considered as exempt supplies or free samples and hence the provisions Of 17(2) read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17(5) of the CGST Act, 2017 will not be applicable. Issues Involved:1. Whether the extra packs of cigarettes would be leviable to GST.2. The taxable value which can be attributed to such extra packs of cigarettes for levy of GST.3. Whether extra packs of cigarettes would be considered as exempt supplies or free samples and hence attract the provisions of Section 17(2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17(5) of the CGST Act, 2017.Detailed Analysis:Issue 1: Whether the extra packs of cigarettes would be leviable to GSTThe applicant, a seller of cigarettes, intends to offer extra packs of cigarettes (quantity discount) without additional consideration as part of a new marketing strategy. The applicant will charge GST and Compensation Cess on the total value of the transaction, which includes both the normal and extra quantity of cigarettes. The applicant sought clarification on whether the extra packs would be subject to GST.Observation: The Authority for Advance Ruling (AAR) referred to Circular No. 92/11/2019-GST dated 07.03.2019, which clarifies that in schemes like 'Buy One, Get One Free,' the transaction should be treated as a supply of two goods for the price of one. It is not considered an individual supply of free goods but rather two supplies where a single price is charged for the entire supply.Conclusion: The extra packs of cigarettes are not individually leviable to GST as they are part of a single supply transaction where a single price is charged for the entire supply. Therefore, the extra packs are not subject to additional GST.Issue 2: The taxable value which can be attributed to such extra packs of cigarettes for levy of GSTGiven that the extra packs are not independently leviable to GST, the question of attributing a taxable value to them does not arise.Conclusion: As the extra packs are part of a single supply transaction and not separately leviable to GST, this question is not applicable.Issue 3: Whether extra packs of cigarettes would be considered as exempt supplies or free samplesThe applicant queried whether the extra packs would be considered as exempt supplies or free samples, thereby attracting the provisions of Section 17(2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17(5) of the CGST Act, 2017.Observation: The AAR noted that since the extra packs are part of a single supply transaction and not supplied free of cost without consideration, they do not qualify as exempt supplies or free samples. The Circular No. 92/11/2019-GST also supports this view by stating that such transactions should be treated as supplying two goods for the price of one, and ITC shall be available for inputs, input services, and capital goods used in relation to such supplies.Conclusion: The extra packs of cigarettes will not be considered as exempt supplies or free samples. Consequently, the provisions of Section 17(2) read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17(5) of the CGST Act, 2017 will not be applicable.Order:1. Question (i): Whether the extra packs of cigarettes would again be leviable to GSTRs.- Answer: No, the extra packs are not independently leviable to GST.2. Question (ii): The taxable value which can be attributed to such extra packs of cigarettes for levy of GSTRs.- Answer: Not applicable, as the extra packs are not independently leviable to GST.3. Question (iii): Whether extra packs of cigarettes would be considered as exempt supplies or free samplesRs.- Answer: No, the extra packs will not be considered as exempt supplies or free samples, and the provisions of Section 17(2) read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17(5) of the CGST Act, 2017 will not apply.