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.
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