Promotional scheme offering 30 extra cigarette packs with 100 packs constitutes taxable supply under Schedule I CGST Act 2017

The AAR UP held that a promotional scheme offering 30 extra cigarette packs with every 100 packs purchased constitutes a taxable supply of 130 packs at the price of 100 packs. The additional 30 packs carry no separate tax liability, and input tax credit remains available for inputs used in the promotional supply. The ruling emphasized that supplies between related or distinct persons are taxable under Schedule I of CGST Act, 2017, regardless of consideration. The applicant must not supply through sole distributors (related persons), as any deviation would void the ruling ab-initio under Section 104 of CGST Act, 2017.

---

---

Issues Involved:
1. Whether the extra packs of cigarettes would be leviable to GST.
2. The taxable value attributable to the extra packs of cigarettes for levy of GST.
3. Whether extra packs of cigarettes would be considered as exempt supplies or free samples, attracting the provisions of Section 17(2) of the UPGST Act, 2017 read with Rule 42 of the UPGST Rules, 2017, or clause (h) of Section 17(5) of the UPGST Act, 2017.

Detailed Analysis:

Issue 1: GST Levy on Extra Packs of Cigarettes
The applicant, engaged in manufacturing and distributing cigarettes, plans to supply an additional 30 packs of cigarettes for every 100 packs purchased without receiving additional consideration. The applicant argued that the entire quantity, including the additional packs, would be reflected in the invoice with taxable value, thus not constituting a free supply. The ruling referred to Circular No. 92/11/2019-GST, which clarifies that in "buy one get one free" offers, it is not a case of free goods but two supplies for a single price. Therefore, the extra packs are not subject to additional GST. The ruling concluded that the extra packs of cigarettes would not be leviable to GST.

Issue 2: Taxable Value of Extra Packs of Cigarettes
Since the ruling concluded that the extra packs are not subject to additional GST, the question of determining the taxable value attributable to the extra packs does not arise. The ruling did not provide an answer to this question due to the negative response to the first issue.

Issue 3: Classification as Exempt Supplies or Free Samples
The applicant contended that the additional packs should not be considered free supplies or exempt supplies since they are included in the transaction value. The ruling referred to the same Circular, which states that in "buy one get one free" offers, it is a supply of two goods for the price of one, and ITC is available for inputs, input services, and capital goods used in such offers. The ruling concluded that the extra packs of cigarettes would not be considered exempt supplies or free samples and thus do not attract the provisions of Section 17(2) or clause (h) of Section 17(5) of the UPGST Act, 2017.

Conclusion:
The ruling determined that the extra packs of cigarettes supplied under the promotional scheme are not subject to additional GST, do not require a separate taxable value, and are not considered exempt supplies or free samples. Thus, the provisions of Section 17(2) and clause (h) of Section 17(5) of the UPGST Act, 2017, do not apply.

---