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Issue : Supply of Demo Products from  head office to branch offices and vice versa and among  the branch offices

Θ As per  Section 2(83)  of CGST ACT, 2017-  “outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business;

A perusal of above reveals that  every supply has been covered under the above definition including supply of demo goods by head office to branch offices, vice versa and among the branch offices.

Θ According to Clause (a) of Sub-section 1 of Section 7 of CGST, Supply includes:

All forms of supply of goods or services or both such as

  • Sale,
  • Transfer,
  • Barter,
  • Exchange,
  • License,
  • Rental,
  • Lease or
  • Disposal made or
  • Agreed to be made

for a consideration by a person in the course or furtherance of business.

It means, whatever supply by a person for a consideration in the course or furtherance of business shall be taxable under GST Laws.

Θ According to Schedule I of CGST – Matters to be treated as supply even if made without consideration:

2nd paragraph of this schedule – “Supply of goods or services or both among related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business”

Θ Distinct Person – Provision related to distinct person are given under section 25(4) of CGST Act:

 “A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.”

Observation: After considering the above provisions in relation to supply of Demo Goods between related persons or distinct persons even at zero value shall be considered as supply of goods and GST shall be paid on the said transaction.  However, this transaction should not be taxable because there is no further supply of goods. These goods are transferred by one related person to another related person just for demo of goods / product and actual supply shall be made by its head office on the basis of purchase order to be received by the particular sales offices. Needles to say demo goods are not meant for sale as these only makes the people aware about the quality and other special features of the product. Thus these lay the foundation for sale and does not involve ‘sale’ at all.  Provisions should be made to exclude demo goods out of the definition of ‘Supply’. Definition of ‘supply’ with or without consideration creates hurdle in promotion and marketing of the products. The GST Acts are silent on the issue inasmuch as there is no logic to pay GST dispatching the goods for demo especially in the event goods are not being dispatched to the buyer. These goods are to be received back after demonstration is completed. So the demo goods should be allowed to be cleared without payment of GST.

 Θ Supply includes every kind of supply as mentioned in

  • the definition of outward supply under section 2(83),
  • meaning of supply under Clause (a) of Sub-section 1 of Section 7 and
  • supply covered under 2ndparagraph of Schedule I

of CGST Act and would be covered the supply of the Demo Goods / product between related person or distinct person.

Θ Sale on Approval Basis – As I understand, the company can’t supply of demo goods to its sales offices under sale on approval basis due to having the same Permanent Account Number (PAN). This provision is only applicable when supply of goods to clients not in case where supply between distinct persons.

Illustration Suppose if A Ltd. is manufacturing company and its principal place of business is in Delhi (Manufacturing Unit located in Delhi). The company has more than one sales office in India such as Haryana, Uttar Pradesh and Punjab etc. However, A Ltd. supplies the goods from Delhi only. There is no supply of goods from any sales offices except Delhi.  A Ltd. (Delhi) supplies the Demo goods to its sales offices from where there is no supply of goods to any clients of the company. The goods supplied to sales offices for demo purpose only. However, GST is levied on the said transaction which impose the additional burden of tax on the company and the company will also fulfill all the compliance under GST Laws i.e totally hardship for them.

Suggestion: In the light of the above discussion, GST Laws are silent in relation to this particular transaction. It is cause of hardship in the business scenario that they are paying the tax on those transactions which should not be taxable under the GST regime. The relaxation should be provided by the GST Council on this issue.

The GST Council should understand this practical problem and provide any clarification or make necessary amendment in the GST Laws such as they have already provided the relaxation in case of Job Work and Sale on Approval Basis.

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6 responses to “GST on Supply of Demo Products from HO to branch & vice versa & among branches”

  1. Maneesh says:

    The content and material provided by you on this topic is excellent and will create revolution in the field of tax and economic world.i think that it will create millstone for all aspirants of tax law and economist ,ca ,cs,cwa, and lawyers​ as well as common people who are integral part of economic world .Best of luck…..

  2. Shefali Gupta says:

    I am very much with J J Mehta sir.
    The provision of seemless credit by introduction of IGST has already solved this problem.
    Plus according to me there is no working capital blockage in this process.credit of IGSTcan b claimed even before GST is actually deposited by HO. So somehow it is a better option.

  3. Heena Boby says:

    Yes that is provided our Sales office is regsitered under GST. In other case we can not reverse it

  4. K.L SETHI says:

    Articles highlighted the problems of trade and industry in right perspective. Hope these will come to the notice of GST Council for amendments in the provisions of GST Acts.

  5. J J MEHTA says:

    WHAT IF DEMO GOODS ARE ALLOWED TO BE SUPPLIED WITHOUT PAYMENT OF GST AND ARE NOT BROUGHT BACK ??

    THE RULE MADE IS PERFECT. FIRST PAY GST WHILE REMOVING DEMO GOODS THEN TAKE CREDIT BACK WHEN RETURNED.

    WHATS THE HURDLE IN THIS?

    IF EXPERTS LIKE YOU QUESTION THE LAW THEN COMMON MAN IS BOUND TO QUESTION WITHOUT UNDERSTANDING IT.

    WHERE DOES GST STOP US FROM CARRYING OUR PROMOTIONAL ACTIVITY?

    JUST BECAUSE YOU DONT WANT TO PAY GST AT THE TIME OF REMOVAL YOU SAY THAT IT IS NOT LOGICAL TO PAY GST. WHY DONT YOU THINK THAT YOU CAN GET THE TAX PAID BACK / REVERSED AT THE TIME OF RETURN AFTER COMPLETING DEMO?

    • Jean Lucose says:

      We also has a supply of goods for exhibition purpose we do not have an office in the said state. The material was kept at a particular place and now we have to export. This was done before GST we are still not clear if GST is applicable to bring back our material since most of the logistics have refused to ply the material to another state even with an export invoice given

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