GST UPDATE ON TREATMENT OF SALES PROMOTION SCHEMES

The GST implication on various sales promotion schemes have been clarified by the government vides Circular No. 92/11/2019-GST dated 07.03.2019. The present update seeks to discuss the clarifications issued by the circular in practical perspective.

Free samples and giftsIt is common practise in various industries that products are being distributed as free sample such as in case of pharmaceutical companies. However, since the product is being distributed as free sample, without involving any consideration, the transaction is not considered as ‘supply’ under section 7 of the CGST Act, 2017. It is clarified that goods distributed as free sample would constitute supply only if they are covered under Schedule I of the CGST Act, 2017. It is further clarified that the assessee would not be eligible to avail input tax credit with respect to inputs, input services and capital goods to the extent they are used in respect of goods distributed as free samples in view of provision contained in section 17(5)(h) of the CGST Act, 2017. However, assessees find the provision of reversing the input tax credit as tedious task practically. Consequently, many assessees are discharging GST on the products distributed as free samples in order to avoid the credit reversal. Although, the circular states the restriction of credit availment is not applicable for supplies covered under Schedule I of the CGST Act, 2017 but whether the practise of paying GST and availing input tax credit even when the transaction of distribution of free sample is not covered by Schedule I is proper or not is uncertain. However, assessees paying GST instead of reversing credit can contend that they have ultimately reversed the credit if they have paid GST on such supplies.
Buy one Get One offer:-It is clarified that in such offers it is not to be understood that one product is being supplied free of cost but rather it is to be understood that two products are being supplied at the price of one. In such cases, the concept of composite/mixed supply will come into picture and the rate of tax will be determined accordingly. Since it is being interpreted that there is no free supply in this case, the assessee will be eligible for availing full input tax credit of inputs, input services and capital goods used therein.
Discounts including ‘Buy more, save more’ offers:-It is very common that the supplier gives volume discounts on purchasing specified quantities of goods. Say for example-Additional discount of 5% if quantity purchased in a year exceeds 20,000 units. In such cases, the additional discount is deductible from the value of supply in terms of section 15(3) of the CGST Act, 2017 as the discount is known at the time of supplying goods provided that the recipeint of goods reverses the proportionate ITC. Furthermore, it is also clarified that the supplier of goods offering such volume discounts will be eligible for availing full input tax credit of inputs, input services and capital goods used therein. This is very common for automobile sector wherein there are different incentive schemes provided by the manufacturer to the automobile dealers for bulk purchase of vehicles. The said incentives are pre-determined and are in the nature of volume discounts. However, in the erstwhile service tax regime, the revenue authorities have disputed the said incentives to be liable to service tax under taxable service of business auxiliary service. In this regard, reference may be made to decision given in the following judicial pronouncements in Service Tax regime:-

COMMISSIONER OF SERVICE TAX, MUMBAI-I VERSUS SAI SERVICE STATION LTD. [2014 (35) S.T.R. 625 (TRI. – MUMBAI)]
MY CAR PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, KANPUR [2015 (40) S.T.R. 1018 (TRI. - DEL.)]
COMMISSIONER OF S.T., MUMBAI VERSUS JAYBHARAT AUTOMOBILES LTD. [2016 (41) S.T.R. 311 (TRI. – MUMBAI)]
SHARYU MOTORS VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI [2016 (43) S.T.R. 158 (TRI. – MUMBAI)]

Similarly, the dispute as regards such incentives is prone to litigation in GST regime but this clarification seeks to provide basis for the assessees to contend that no GST is payable on such incentives.

Secondary Discounts:-It is clarified that if the terms of discount are altered after making supplies and the additional discount was not known at the time of making supply, then the deduction from the value of supply will not be allowed to the supplier of goods. Similarly, there will be no need to reverse any input tax credit on part of recipeint. Likewise, it is also clarified that the supplier of goods offering such volume discounts will be eligible for availing full input tax credit of inputs, input services and capital goods used therein. Such additional discounts which are not known at the time of making supply can be adjusted only by way of issuance of financial credit notes.

This is solely for the educational purpose.
You can reach us at www.capradeepjain.com, at our facebook page on
https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21

Comments

GST UPDATE ON TREATMENT OF SALES PROMOTION SCHEMES

Post a Comment

Query