The Government has issued Circular No. 92/11/2019-GST dated 7 March 2019 where certain aspects with respect to treatment of various sales promotion schemes, their impact on taxable value and input tax credits (ITC) have been clarified.

A synopsis of the various cases discussed in the Circular is provided below.

Cases discussed in the Circular Clarifications issued by CBIC
Implication on taxable value for GST purposes Impact on Input Tax Credit (ITC) Conditions, if any
Free Samples And Gifts

Supply of samples to stockists, dealers etc. without charging any consideration

Free Samples not be treated as supply (unless they fall within the ambit of Schedule I of CGST Act i.e. deemed supplies even if made without consideration in select cases like supplies to related parties etc.) – Hence, GST is not payable on free samples
  • ITC shall not be available on inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration
  • ITC available if free samples fall within the ambit of supply (under Schedule I)
N/A
Buy-One Get-One Free and similar offers

Buy one unit of a product and get the second unit free/ OR

Buy one product and get another product free

It is a case of supplying two or more individual supplies where a single price is being charged for the entire supply

GST is applicable on the actual consideration charged (i.e. single consideration) and applicability of GST rate will be dependent upon as to whether the supply is a composite supply or a mixed supply

This is a welcome clarification and puts to rest the debate as to whether such schemes would attract GST on the value of the product supplied free of cost, or not.

Entire ITC is available for the inputs, input services and capital goods used in relation to such promotional supplies N/A
Discounts including ‘Buy more, save more’ offers

Case A:

Additional discounts over and above base discount for increased quantum of purchases – Discount offered on the Invoice itself

Case B:

Periodic/ year end discounts by supplier to stockists – Discounts through issuance of credit notes post original supplies

Case A: Discounts offered on invoice shall be excluded to determine the value of supply

Case B: Discounts offered post sale (through credit notes), are deductible from the taxable turnover and tax adjustment is allowed provided they satisfy the conditions laid down in Section 15(3) of the  CGST Act i.e. the discounts are agreed at the time of contract for sale and credit notes contain linkage to the original invoices

No adjustment is required in the ITC of the supplier In Case B (post-sale discounts), where credit notes are issued, supplier has to ensure that the customer reduces its ITC by the amount of GST disclosed on the credit note
Secondary Discounts (Post Sale discounts)

Illustration in the Circular: Supply of 10,000 packets of biscuits at INR 10 per packet. Afterwards, supplier re-values it at INR 9 per packet. Accordingly, supplier issues credit note for INR 1 per packet

Commercial credit notes can be issued in these cases without GST. However, adjustment of taxable turnover and GST cannot be claimed since the conditions mentioned in Section 15(3)(b) of the CGST Act  would typically not get satisfied in these cases, as the discounts are not pre-agreed at the time of original supplies. No adjustment is required in the ITC of the supplier or the customer N/A

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