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

AI Summary

Supply treated without consideration: GST or ITC reversal usually arises for free-of-cost goods unless valuation or warranty exceptions apply.
Whether goods given free of cost attract GST depends on Schedule I's treatment of supplies without consideration and the ITC reversal rule in Section 17(5)(h). If ITC was availed on inputs used for FOC goods, reversal of proportionate ITC or payment of GST on the FOC clearance is typically required; exceptions include warranty replacements or where the FOC items were included in the original taxable value. Practical compliance options include invoicing FOC value then showing discount, recording FOC as part of sale quantity, or paying GST and maintaining documentary support.