supply of goods under FOC

[Ramakrishnan Seshadri]

Dear Sir/Experts.

We kindly request you to reply our question.

Our Customer wants us to supply some parts under FOC or Free of supply. What is the procedure under gst.

Whether we have to charge GST in our invoice or what to do.

Please advise.

Thanks & Regards,

S.Ramakrishnan

[KASTURI SETHI]

From your query, it appears that free supply is in the course or furtherance of business. Hence It is taxable. Moreover, free supply always creates doubt in the eyes of the department. To be safer pay tax. Also read Section 25. There is provision for free gift up to ₹ 50,000/- with out GST but in your case it is not applicable. It is not gift.

I am of the view that it is never free. There may be verbal or written agreement for mutual exchange in some guise.

[Himansu Sekhar]

Please give the detail method of transaction.

If it is under warranty, no gst is chargeable

Otherwise if a free supply with main item also no gst is chargeable.

[Vinod Pahilwani]

Kasturiji what would be your reply if its being charge at nominal value say rs. 1. as parties are not related parties transaction value would be considered for gst purpose.

I guess zero rs. should also be considered as transaction value.

[KASTURI SETHI]

Actual transaction value should be adhered to. You will not be safe by ₹ 1 or Zero. Nobody gives free goods to anyone.

[Rajagopalan Ranganathan]

Sir,

According to Schedule I of CGST Act, 2017 following ACTIVITIES ARE TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION: -

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods-

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

According to Section 25 (5) of CGST Act, 2017 " Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act. "

Since you are supplying the goods FOC you have to ascertain the value of such supply and pay gst on such supply.

[KASTURI SETHI]

I endorse the views of Sh. Ranganathan, Sir. Thanks for comprehensive and crystal clear reply. No room for any doubt has been left.

AI Summary

Taxability of free supplies: free-of-charge goods in course of business treated as taxable requiring valuation and GST payment.
Free provision of goods in the course or furtherance of business is treated as a taxable supply and requires determination of the taxable value and payment of GST. Supplies without consideration between related or distinct establishments are within the supply rules and need valuation; nominal pricing is not a safe approach. Employee gifts under the specified exemption and genuine warranty replacements may be excluded from tax; however, free transfers commonly attract departmental scrutiny and may require input tax credit adjustments.