The Principal commissioner(GST) of Central Board of Indirect Taxes and Custom vide its Circular No. 92/11/2019-GST dated 7th March 2019 has clarified the following issues:-

1) Free samples and gifts:

As per sub clause (a) of sub-section (1) of section 7 of the said Act, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. In other words goods or services or both which are supplied free of cost shall not be treated as supply under GST except in case of activities mentioned in Schedule I of GST Act. Further, as per clause (h) of sub-section (5) of section 17 of the said Act input tax credit by way of gifts free sample is not allowed. However, where the activity of distribution of free sample comes under the scope of supply as covered under schedule 1 of CGST Act, ITC will be available.

2) Buy One Get One Free offer:

Many companies mainly FMCG companies have schemes offering one product free against buying one product. As per sub-clause (a) of sub-section (1) of section 7 of the said Act, the goods or services which are supplied free of cost shall not be treated as supply under GST except in case of activities mentioned in Schedule I of the said Act. Generally it appears that the other product is being sold free of cost & is an independent supply. In fact it is not an independent supply but a part of composite or mixed supply with the original product as covered under section 8 of CGST act. Hence ITC on such goods will 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.

3) Discount Including “buy more, save more” offers:

In business there are suppliers who offer quantity discount as well as volume discounts to its customers. Such discounts are often established in terms of an agreement entered into at or before the time of supply though not duly recorded on the invoice as the actual amount of such discounts gets determined after the supply has been effected and generally at the year end. Such discounts are passed on by the supplier through credit notes. It has been clarified that such discounts are not to be included in the value of supply provided that conditions under Section 15(3) of GST Act are satisfied. 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.

4) Secondary Discounts:

Many suppliers offer discounts which are not known at the time of supply or are offered after the supply is already over. They issues credit notes under section 34 of CGST Act. It has been clarified that discounts given by means of credit notes post supply does not fulfill the conditions laid down under section 15(3)(b), as there did not exist any agreement before the time of supply & hence such secondary discounts shall not be excluded while determining the value of supply. There is no impact on availability or otherwise of ITC in the hands of supplier in this case.

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