Free of Cost material under GST

[SURYAKANT MITHBAVKAR]

We are manufacturing of Pharmaceutical Machinery registered under GST Act. In routine course we require to send material for free of cost to our customer.

While sending the FOC material we will charged GST as per law with tax invoice. In this case we are not recovering any cost from our customer also we are costing the material 110%.

My question is that invoice we will prepare for the above transaction what type of precaution we will take so that our finance department is not debited the amount to customer account and follow up for payment.

[KASTURI SETHI]

Taxable value should not be less than that of similar goods available in the market.

[CSSANJAY MALHOTRA]

No GST is leviable in case of FOC material, only Input Tax Credit needs to be reversed as per Rule 17(5) of CGST/SGST Act. FOC material is to be cleared on Delivery Challan.

AI Summary

GST on free supplies: no tax charged but input tax credit must be reversed under Rule 17(5). Free-of-cost supplies are not subject to GST, but suppliers must reverse any claimed input tax credit under Rule 17(5) and document such transfers on a delivery challan; alternatively, taxable value should align with similar market goods if valuation is applied, and suppliers must ensure accounting prevents charging customers when no consideration is recovered.