Free supply

[Amresh kumar]

Sir/ madam

We have obtained advance ruling regarding promotional & free supply to boost the marketing. The product is cigarette.

Scheme is buy 1 get 2 free .

ARA order clearly says no need to pay GST on free & promotional supply and also no need to reverse ITC.

My query is will the GST cess also be exempted on such free & promotional supply. Since GST is levied advalorum and GST Cess is on qty.

Thanks & regards

Amresh kumar

[Ganeshan Kalyani]

Since, the AAR in your case (as mentioned by you) clarifies that there is no GST on free and promotional supply then in my view, there cannot be GST cess as well.

[PAWAN KUMAR]

dear Sir,

you mentioned in your application regarding the cess, if not, then you need to pay.

[Amresh kumar]

Dear Pawan,

In application we mentioned applicable gst only.

[Rajagopalan Ranganathan]

Sir,

In my opinion, AAR cannot give exemption from payment of cess. If the order deals with payment of gst on free supply of goods, then you have to pay cess. However you may seek correction of the error of not mentioning cess in the order. If AAR reject your application only remedy is to file a writ petition in the jurisdictional High Court.

[Alkesh Jani]

Shri

I agree with the views of Rajagopalan Ranganathan Sir.

[Amresh kumar]

Dear sir,

Gst includes cgst,sgst,utgst and gst cess also.

When gst cess is charged on the free scheme then it defys the logic of free supply and then the Dept may ask to pay gst also saying since gst cess is charged it is not free supply.

Regards

Amresh Kumar

[PAWAN KUMAR]

dear Sir,

comp.cess is levied under different law, to make this cess exempt, you need to file the another application in line with the order of ARA. Otherwise, comp.cess will be payable.

[Alkesh Jani]

Shri Amreshji,

Please refer Compensation Cess Act. The Cess is ad valorem and not on tax as in erstwhile Act. hope this will clear your doubt

[KASTURI SETHI]

Sh.Amresh Kumar Ji,

I do not refute the views of the experts but you must go through the following case law of Supreme Court:-

2019 (366) E.L.T. 577 (S.C.) = 2019 (3) TMI 1427 - SUPREME COURT BAJAJ AUTO LIMITED Versus UNION OF INDIA

[Alkesh Jani]

Shri

I stand still to the views given before. Making an effort that in erstwhile Act, the Cess and Surcharge were levied on aggregate basis while in Comp.Cess Act it is levied as Ad valorem. This makes lots of difference from my point of view. As an example, in GST decision is passed by high court that if principal supply i.e. Electricity is exempted all other supply forming composite supply will be exempted. while this is not applicable to mixed supply.

In other words in erstwhile Act cess and surcharge were levied on the duty/tax, so if duty/tax is exempted levy of cess or surcharge is not applicable means Cess were depending upon duty/tax. While here it is the case of ad valorem means it is not dependent of duty/tax.

Shri Kasturiji Sir, with due respect, we lay foundation for querist, now it upto him/her to take decision as per their wisdom.

With Due Regards

[Amresh kumar]

Respected Kasturi Sir & Jani Sir, and all

Thanks a lot to all for valuable input.

I am still in the learning stage and hence obliged to you all.

Regards

Amresh Kumar

[Gaurav Narula]

Dear All,

The AAR ruled that GST is not payable on free supplies. This position is given on the basis that there is 'no supply' due to lack of consideration in free items. When the transaction fails to qualify as 'supply' then there can not be levy of any tax be GST or cess on this transaction. All other debate on the jurisdiction, rectification etc. can be avoided.

Thanks

CA Gaurav Narula

AI Summary

Free supply and cess: absence of consideration may preclude cess levy, but compensation cess law may still apply.
An AAR finding that free promotional items are not subject to GST because there is no supply suggests no levy of compensation cess; however, several respondents note compensation cess is imposed under a separate ad valorem statute and may not be covered by a GST-focused AAR, so affected parties may seek rectification of the order, file a separate cess application, or pursue writ remedies if the AAR omits cess treatment.