Free Supply

[Kaustubh Karandikar]

XYZ is having a shop cum restaurant. In the restaurant area they are giving e.g. one plate pani puri free on purchase of one plate biryani. In my view, they will be required to pay GST only on biryani and for pani puri given free, they need to reverse proportionate ITC for common credit. Is my understanding correct sir?

[KASTURI SETHI]

One plate Pani Puri offered by restaurant owner with plate of biryani is quantity discount and admissible under Section 15 (3)(a) of CGST Act and proportionate reversal is required as per proviso to Section 16(2) of CGST Act read with Board's Circular No. 105/24/2019-GST, dated 28-6-2019 (Para No.4).

[Alkesh Jani]

Sir,

In this regards, I am of the view that Para 2(B) of Circular No.92/2019-GST dated 07.03.2019 is applicable in the instant case.

Thanks

[Ganeshan Kalyani]

This has two views and one should go by act rather by circular.

[KASTURI SETHI]

(1) Proviso to sub-section 2 of Section 16 of CGST Act ,

'Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon'.

(2) Moreover, C.B.I. & C. Circular No. 92/11/2019-GST, dated 7-3-2019 stands updated/clarified vide 105/24/2019-GST dated 28-06-2019.

(3) Allowing discount does not mean denting revenue in the form of allowing ITC on that portion of value of supply of goods on which tax has not been paid. 3rd proviso to sub-section 2 of Section 16 clearly says that ITC is not allowed in the above scenario as asked by the querist.

ITC is to be used in the course or furtherance of business of supply of goods or services or both. Business implies taxable business. If no tax has been paid on portion of value of supply of goods, proportionate ITC has to be reversed.

[Himansu Sekhar]

Buy one get one free offer:

Sometimes, companies announce offers like ‘Buy One, Get One free‟ . This is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.

Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the said Act.

It is also clarified that ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.

[Shilpi Jain]

You could also look at making it a combo offer like Biryani + Pani Puri = Rs. ___. However, if the restaurant is charging 5% GST then any way there is no ITC. I hope it the other case of 18%.

AI Summary

Free-supply GST treatment: complimentary items treated as quantity discounts, requiring proportionate reversal of input tax credit.
A complimentary item given with a paid sale is typically a quantity discount, so tax is charged on the paid item while the supplier must reverse proportionate input tax credit attributable to the non taxed portion under the proviso to the ITC entitlement; classification as a composite or mixed supply for combo offers determines rate and ITC applicability.