Case Law Details
CA K. Jitendra Babu
The fundamental principle of sales tax is that there should be sale of goods involving buyer and seller, there should be transfer of property in goods from the seller to the buyer and flow of consideration from the buyer to the seller.
In case of samples issued by the assessee as a part of promotion program, first of all there is no buyer and seller, there is no
transfer of property in goods and there is no consideration.
When none of the conditions are fulfilled, there is no sale as per Sales Tax/VAT Acts.
Even though Trade/Industry/Department is aware of the above statutory position, still demands are raised on free samples issued and the disputes are reaching to the level of High Court, clogging the precious time of the courts.
In a recent judgement, High Court of Rajasthan has held that free issue of samples is not liable for VAT. Copy of the judgement is attached herewith for the benefits of the readers. Observation of the High Court is as follows :-
Free samples is in accordance with trade practice and is one of the major factor where manufacture/producer can put its product in the market. Marketing through free samples is commonly accepted trade practice which one is required to resort in the competitive business environment. The revenue gains substantially when the samples are accepted over the years by the consumers who later on purchases the commodity. It is also noticed that the free samples in the instant case is negligible to the total turnover. The free samples provided to the dealer who in turn provides the same to selected consumers cannot be said to be liable for sales tax. It has no marketable value. To say that the samples provided by assessee can be held to be liable to sales tax, in my view, does not appear to be justified and Tribunal has rightly come to the said conclusion.
Download Full Text of the Judgment
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You are absolutely right but In UP Vat a deputy commissioner says that no exemption on purchase FOC material. We have import from out of country RS 2 crore sample of leather and after testing and produce we export the same.But officer raised turnover 2.5 times and raised tax 32,00,000.00.
It is clear that SAMPLE do not attract VAT. However, please clarify whether trade scheme such as: 11+1 attract VAT on not
sir,
we have a case that we issue free goods as not samples (as MRP Printed medicines) in this case is we need to pay VAT for this??
IN THIS CASE CAN WE GET INPUT TAX CREDIT ON RAW MATERIAL?
Input tax is tax paid on purchase of goods. In case the goods purchased are issued as free samples, then input tax claimed on such goods is to be reversed
The question of input tax credit does not arise, as VAT is not payable on goods issued as free samples.
Tax invoice cannot be raised in case of goods issued as samples. Therefore taking input tax credit and reversing the same does not arise at all.
Input credit taken in respect of sample goods (whether as raw material or finished goods) is liable to be reversed