free samples

[Madhavan iyengar]

Where free samples are given ( could be customers or outsiders) GST treatment

Is following treatment appropriate

a) since free samples are of finished product and presumable of fresh product GST has to be discharged on market value of the FOC product by supplier and shown in B2C in GSTR-1 ( even if given to a regd person) and requires no ITC reversal.

b) sec 17(5) (h) - reversal of ITC would apply only in case of disposal of samples, since word disposal has been used ie where the sample is of inferior quality then ITC to be reversed

[Alkesh Jani]

Sir,

Please read section 17(5)(h) by omitting the words lost, stolen, destroyed, written off or disposed of and gift.

Hope this will clear ambiguity.

Thanks,

With regards,

[KASTURI SETHI]

Dear Querist,

Why you shutting your eyes on the word, 'Free' ? I support the the reply of Sh.Alkesh Jani Ji.

[Mahadev R]

Option between identifying the ITC on inputs and reversing Vs. paying GST on OMV when it is known could be considered.

[Madhavan iyengar]

There is no option, sec 17(5) needs to be strictly interpreted we need to first ascertain principally whether we are treating samples as FOC for discharge of gst or if not then reverse ITC.

Once dept/ courts interpret there should not be any interest liability as all these will come after 2/3 years and interest will be sizeable. So we need to fix it now.

as already advised by learned readers that ITC to be reversed ???

[Mahadev R]

GST is a law wherein still there are lot of issues for which there is no clarity in law straight forward. Till that time we could consider options. When GST is paid on finished goods, generally it would be more than ITC amount. Irrespective of options followed, it can be argued that ITC has been reversed.

My personal view. Experts are free to agree / disagree

[Madhavan iyengar]

yes i fully appreciate your views and agree and we all need to deliberate then only finer points would come out. both stand out on different footing Reversal of ITC is separate and utilising ITC to discharge the out put liability is separate

Department would ask for a working as to how we have discharged the gst / reversed If we reverse then we need to follow some methodology say on FIFO basis. and if discharging gst then it would paid out thru our acc ITC.

[KASTURI SETHI]

I concur with the views of Sh.Madhavan Ji.

AI Summary

GST treatment of free samples: tax on open market value or reverse input tax credit, with documented methodology required. GST treatment of free samples involves either taxing the distribution on the Open Market Value of the finished product as an outward supply or applying Input Tax Credit Reversal rules where ITC must be reversed for goods used for non-business or free distributions; taxpayers must adopt and document a principled methodology for valuation or ITC apportionment to support their treatment.