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GST ITC reversal Free of cost

Madhavan iyengar

A Company manufactures Item B This manufactured item B some pieces have been given Free of Cost to some customers

Issue For the manufactured items given as Free of Cost is GST required to be charged when they are given

Kindly also note that in terms of Schedule I of CGST Act

ACTIVITIES 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.

If we refer to above schedule then can it be inferred that the item (being a business asset ) further the term business asset is not defined in GST law) given as FOC even with out consideration will fall in Schedule I as ITC has been availed for manufacture of the FOC item

Hence sec 17(5)(h) would not apply ie ITC need not be reversed.

Experts kindly give your views

GST on Free Items: Experts Debate Tax Implications and Input Tax Credit Reversal Under CGST Act Schedule I A company inquired about the GST implications for items given free of cost (FOC) to customers, questioning whether GST should be charged and if input tax credit (ITC) needs to be reversed. Experts debated whether such transactions fall under Schedule I of the CGST Act, which treats certain activities as supplies even without consideration, necessitating ITC reversal. Opinions varied; some suggested paying GST on FOC supplies to avoid disputes, while others argued that if FOC items are part of a larger sale, no reversal is needed. The consensus leaned towards paying GST to prevent complications, especially for warranty replacements. (AI Summary)
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