CBIC has clarified various doubts as regards treatment of various sales promotional schemes under GST vide circular 92/11/2019 dated 7th March 2019 to ensure uniform implementation of the law. Summary of the said circular is as below.
Free Samples & Gift
It is clarified that samples which are supplied free of cost without any consideration do not qualify as “supply” under GST and hence will not be subject to tax except where the transactions fall within the ambit of schedule I of the Act specifying transactions which are subject to tax when carried out without consideration. As per clause (h) of section 17(5), the input tax credit shall not be available to the supplier on inputs, input services and capital goods to the extent they are used in relation to the gifts and free samples. However, if the said transaction is subject to tax under schedule I of the Act, the input tax credit will be available.
Discount offered linked to volume of purchase
Sometimes a supplier offers a discount in proportion to quantity purchased by the customers e.g. 10% discount on purchase above Rs.5000/-, 15% discount on purchase above Rs.10,000/- and so on. Such discounts are shown on the face of the invoice. Some suppliers offer periodic/ year-end discounts to stockists/ distributors based on quantity purchased by them during the period/ year. such discounts are established in terms of the agreement entered into at the time of supply or even before that. In such cases, discounts are not shown on the face of invoice since such discounts are decided later based on volume supplied. Such discounts are passed on by the suppliers through credit notes
Buy one and Get one free
As stated above, goods and services which are supplied free of cost are not subject to tax (except in case of activities covered under schedule I of the Act). In case of buy one get one free offer, it is not free to supply but two or more supplies are supplied at a single price charged for the entire supply. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or mixed supply and the rate of taxation will be determined as per section 8 of the Act. It is pertinent to note that as per section 8, for composite supply, tax rate applicable on item constituting as principal supply will be applicable on the full value of supply offered as part of buy one get one free. In case of mixed supply consisting of two or more supplies offered as a package for a single price (without bifurcation), tax rate applicable to the product/service with the highest rate of tax will be applied to the entire value of supply. It is also clarified that ITC shall 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.
It is clarified that discounts offered by the suppliers to customers as above shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act i.e. if the discount is offered after the supply, such discount is established in terms of agreement entered into at or before the time of such supply and specifically linked to relevant invoices and input tax credit attributable to such discount on the basis of document issued by the supplier has been reversed by the recipient.
These are the discounts which are not known at the time of supply or are offered after the supply is already over. It has been clarified that where condition laid down in clause (b) of section 15(3) with regards the reversal of input tax credit by the recipient of the supply is not fulfilled, credit note u/s. 34(1) can not be issued to give the effect of reduction in tax amount due to the discount offered subsequently. Hence, it is very important to note that credit note cannot be issued to reduce the taxable value of supply under GST unless the recipient of supply does a reversal of the credit attributable to the discount value offered by the supplier subsequent to supply of goods and services. Unilateral act of reducing the value of supply by the supplier through the issue of credit note without verification of the fact that recipient of the supply did a reversal of the input tax credit will result into the recovery of tax on the part of the supplier.