TaxTMI 
TaxTMI 
2019 (6) TMI 1357
X X X X Extracts X X X X
X X X X Extracts X X X X
....ands/products in the market, thru their Distributors. The price range of these cigarettes of a pack of 10 will be in the range of Rs. 50/- to 200/- (depending upon the brand). MRP will be printed on each pack of Cigarettes. However, as marketing strategy to counter competition, instead of supplying a quantity of say 100 packs for an agreed price of say Rs. 5000/- they would be supplying 110 packs of Cigarettes without recovering any additional cost from the Distributors. The Applicant would be paying GST and Compensation Cess on Rs. 5000/- at applicable rate. Clarification sought from Hon'ble Authority for Advance Ruling: (i) In the above transaction, whether the extra packs of Cigarettes would again be leviable to GST? (ii) If yes, the taxable value which can be attributed to such extra packs of Cigarettes for of GST? (iii) Whether extra packs of Cigarettes would be considered as exempt supplies or free samples and hence attract the provisions of Section 17 (2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17 (5) of the CGST Act, 2017? At the outset, we would like to make it clear that the provisions of bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- on which GST and Compensation Cess at applicable rate would be charged, levied and collected. The Applicant will prepare the Tax invoice showing total quantity of Cigarettes as 110 packs and Taxable Value as Rs. 15,000/- and calculate thereon the GST and Compensation Cess. A copy of an Invoice intended to be used by the Applicant on roll out of this Sales Promotion measure is enclosed and marked as EXHIBIT B. As required under Legal Metrology (Packaging Commodity) Rules 2011, MRP would be printed on each of the said 110 packs of Cigarettes. The packs of Cigarettes containing additional quantity would not indicate that the same are free supplies or are in any manner different from the packs of Cigarettes in the original quantity. The Distributor has the option to either pass on or otherwise, the benefit of additional quantity of Cigarettes packs received within the price of the original quantity to their stockists or retailers, as the case may be. d. Based on the above the Applicant seeks clarification/suggestion/ validation from the Hon'ble Advance Ruling Authority as under: (a) In the above transaction, whether the extra packs of Cigarettes would again be levi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dule II." iv. The Applicant submit that as per the nature of proposed supply as indicated at Sr. No.15 of Form ARA-01, their activity would not find coverage within the scope of Schedule of the CGST Act, 2017 since such supply is neither a transfer or disposal of business assets nor supply of goods between distinct persons, supply of goods by a principal to his agent or vice-versa. The Applicant seeks validation to this effect from the Hon'ble Authority for Advance Ruling. v. Since the entire quantity of Cigarettes supplied to their Distributors including additional quantity, would find reflection in the Invoice along with taxable value thereof, the taxable value so mentioned in the Invoice would correspond to the entire quantity of Cigarettes supplied under the said Invoice, including the additional quantity. Hence, it cannot be a case of free supply without consideration and thus such supply of original quantity along with additional quantity would be supply as indicated in clause (a) to sub-section (l) of Section 7 of the CGST Act, 2017. The Applicant seeks validation to this effect from the Hon'ble Authority for Advance Ruling. vi. As per sub-section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n which GST and Compensation would be discharged, such supply of additional quantity cannot be held as exempted supplies or supply of free samples. Consequently, in respect of such supplies the mischief under sub-section (2) to Section 17 of the CGST Act, 2017 or of clause (h) of sub-section (5) of Section 17 of the CGST Act, 2017 will not be attracted. The Applicant seeks validation to this effect from the Hon'ble Authority for Advance Ruling. 3b. Additional submission on 06.04.2019. Facts of the case 1) In order to promote growth and boost sales of the company, we are intending to launch a promotion scheme for all our distributors. The promotion scheme that is proposed to be unveiled by the company will be applicable for all our distributors. 2) As per this new sales promotion strategy the Applicant intends to supply additional packs of Cigarettes along with regular supply of cigarettes of a particular quantity, without receiving any additional consideration. In other words a specific number of cigarettes/cigarette packs will be supplied to our customers along with a particular quantity purchased for the price of that particular quantity. The scheme which is intended ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stributor "A" than the discount will be 10%, and an order of INR 10,000 from distributor "B' than the discount will be 20% 4) Both the above scheme of discount will be made available to the distributors before placing the order, in other words the distributors, even before placing the orders for supply of cigarettes from us, will be well aware of the quantum of additional packs of cigarettes which will be supplied to them. 5) As required under Legal Metrology (Packaging Commodity) Rules 2011, MRP would be printed on each of the said 110 packs of Cigarettes. The packs of Cigarettes containing additional quantity would not indicate that the same are free supplies or are in any manner different from the packs of Cigarettes in the original quantity. 6) Applicant would like to bring attention of the Honourable Authority that there has been development in our case post the filing of our Advance Ruling Application. The CBIC has issued a circular with File Number 92/11/2019-GST dated March 7, 2019. Wherein they have provided clarification on various doubts related to treatment of sales promotion schemes under GST. The government has examined various schemes and clarifications on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....apital goods used in relation to supply of goods or services or both as part of such offers. 9) Alternatively, Applicant would also like to reproduce scheme number. (c) of the above mentioned Circular dated 07.03.2019 which is as under: (i) Sometimes, the supplier offers staggered discount to his customers (increase in discount rate with increase in purchase volume). For examples Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10,000/- and 30% discount for purchases above Rs. 20,000/-, such discounts are shown on the invoice itself. (ii) Some suppliers also offer periodic / year ending discounts to their stockists, etc. For example- Get additional discount of if you purchase 10000 pieces in a year, get additional discount of 2% if you purchase 15000 pieces in a year. Such discounts are established in terms of an agreement entered into at or before the time of supply though not shown on the invoice as the actual quantum of such discounts gets determined after the supply has been effected and generally at the year end. In commercial parlance, such discounts are colloquially referred to as "volume discounts". Such discounts a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e price actually paid or payable for the goods or services or both,' (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of,' or before delivery of goods or supply of services; (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation. -For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy: 3) The value of the supply shall not include any discount which is given (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if (i) such discount is established in terms of an agreement entered into at or. before the time of such supply and specifically linked to relevant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt in the instant case is no way concerned with it and it has to pay duty on the full value of the consignment in terms of the Section 15(3) of the CGST Act, 2017. A sample transaction between a supplier "S" and a recipient: "R" for a consignment valued at Rs. 1,000/- on which 15% additional goods are being given as discount and where the rate of duty shall be as the followings. The invoice value at the supplier's end shall be of Rs.l,150/- [Rs. 1,000+ Rs. 150 (discount/promotional scheme at the @ 15%)] and the duty @10% on this consignment shall be paid by supplier "S" that will be amounting to be Rs. 115/-. Now to avail the benefit of the Section 15(3) of the CGST Act, 2017 the recipient of the supply "R" would take credit of the full amount of the duty paid by him that is Rs. 115/- however, the recipient "R" Shall have to reverse the credit of Rs. 15/- attributable to the discounted amount of Rs. 150/- as indicated clearly in the invoice in the instant case. Para 14 (i): Yes, as discussed above. Para 14 (ii): As discussed above in reply to the Para 13. Para 14 (iii): No, it is not exempt supply (as discussed above). 04. HEARING Prelimina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ks purchased and as per this ratio they will have to supply 100 packs when an order of 1000 packs are placed by the distributors. However in such cases where they receive huge orders like that of 1000 packs they would like to supply an additional, say, 150 packs instead of 100 packs. In the ease of purchase of 1000 packs as mentioned aforesaid the distributor will pay for 1000 packs of cigarettes and will receive 150 packs. Thus in this case they will be making two individual supplies, i.e. of packs of cigarettes of 1000 packs and 150 packs and the said supplies same will be made for the price of 1000 packs. Here they have stated will be a case of staggered discounts to distributors so that they buy more and get more and in the process increase or sales and thereby growth. The Applicant has also submitted illustrations in their submissions which are mentioned above. The jurisdictional office has cited the provisions of Section 15(3) of the CGST Act and submitted that a careful reading of the said Section indicates that the benefit of discount in value is available only to the recipient of the supply and not to the supplier i.e. the applicant in the instant case. The jurisdiction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed as "supply" under GST (except in case of activities mentioned in Schedule I of the said Act). Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as "supply" under GST, except where the activity falls within the ambit of Schedule I of the said Act. ii. Further, clause (h) of sub-section (5) of section 17 of the said Act provides that ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of "supply" on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC. B. Buy one get one free offer: i. Sometimes, companies announce offers like 'Buy One, Get One free " For example," buy one soap and get one soap free "or "Get one tooth brus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier. iv. It is further clarified that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts. D. Secondary Discounts i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet. ii. The provisions of sub-section (1) of section 34 of the said Act provides as under: "Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s supplying two goods for the price of one. In the case of Buy 100 Get 10 free it will be 2 individual supplies, each of 100 packs and 10 packs for the price of 100 packs. In such a case 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. Further, ITC shall also 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. The situation mentioned at Para(C) of the above said Circular mentions situations whether value discounts are envisaged and therefore will not be applicable in the subject case where value discounts are not contemplated. The situation mentioned at Para(D) of the above said Circular mentions situations where discounts are not known at the time of supply or where discounts are offered after the supply is over. In the subject case the discounts are known well before the supply is effected 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (Under section 98 o....