GST UPDATE NO 260 ON SUPPLY OF EXTRA QUANTITY FOR SINGLE PRICE

The GST liability on supply of extra quantity along with the original quantity for single price without any extra charge has been a matter of dispute as to whether the extra quantity supplied is to be considered as free supply or not. This issue was recently raised before the Uttar Pradesh AAR in the case of M/S GOLDEN TOBIE PRIVATE LTD.

The applicant was engaged in manufacturing, marketing and distribution of cigarettes. In the view of competition in the market, the applicant bought a new business model where he will be supplying extra packets of cigarettes along with the regular quantity to their distributors without any additional consideration. The applicant would be discharging GST attributable on such supply which includes normal as well as extra quantity. For example- earlier the applicant was sending 100 packets of cigarettes to distributor for Rs.10,000/- whereas now as per promotional scheme, it will send 130 packets of cigarettes to the distributor for same price of Rs. 10,000/-. Therefore, both individual supplies i.e. 100 packets and 30 packets would be made for a single price of 100 packets. All 130 packets of cigarettes would have all disclosures as required under the Legal Metrology Act i.e. they are not free sample.

Applicant contended that this supply will neither fall under a transfer nor a disposal of business asset or not supply between distinct person or not a principal to agent transaction therefore this is not a case of free supply. It will be considered as a supply under section 17(1)(a) of CGST Act, 2017. As per Sec 15(1) of CGST Act, 2017, it will be the transaction value i.e. price actually paid for such goods because no additional consideration is received from distributor for additional quantity.
Circular no 92/11/2019 dated 07.03.2019 has sought to clarify the issue with respect to tax treatment of sales promotion schemes under GST in order to ensure uniformity in law. This circular covers the scheme of Buy one Get one free offer. In case of Buy one get one, initially it may look like one supply is being made free of cost or without any consideration but actually, there are two individual supplies made for single price. In this case, ITC will be available to supplier for input, input services as well as capital goods which are used in relation to such supply because the additional supply is not to be treated as free supply.

Hence, AAR gave its ruling in favour of assessee by stating the fact that extra packets of cigarettes will not be considered as exempted supply or free supply hence provisions of Sec 17(2) read with rule 42 of GST Act, 2017 or Sec 17(5)(h) of GST Act ,2017 will not be applicable.

The above ruling is a favourable and aligns with the clarification issued by the CBIC regarding sales promotion schemes. This ruling will be beneficial to the assesses who are engaged in various incentive schemes such as “Buy one get one free” or supply of additional quantity for same price as it seeks to provide that GST is payable on the total consideration charged for the regular supply along with additional quantity with no need to reverse input tax credit as additional quantity is not to be considered as free supply.

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GST UPDATE NO 260 ON SUPPLY OF EXTRA QUANTITY FOR SINGLE PRICE

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