GST Treatment of sales promotion scheme
A. GST on Free samples and gifts
B. GST on Buy one get one free offer
C. GST on Discounts including Buy more save more’ offers:
D. GST on Secondary Discounts
Download Circular No 92/11/2019 GST [ Ссылка ]
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Circular No 92/11/2019 GST
Dated the 7th March, 2019
A. Free samples and gifts:
i. It is a common practice among certain sections of trade and industry, such as, pharmaceutical companies which often provide drug samples to their stockists, dealers, medical practitioners, etc. without charging any consideration.
Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as "supply‟ under GST, except where the activity falls within the ambit of Schedule I of the said Act.
It is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration.
However, where the activity of distribution of gifts or free samples falls within the scope of "supply‟ on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.
B. Buy one get one free offer:
i. Sometimes, companies announce offers like ‘Buy One, Get One free‟ For example, "buy one soap and get one soap free‟ or "Get one tooth brush free along with the purchase of tooth paste‟. It may appear at first glance that in case of offers like "Buy One, Get One Free‟, one item is being "supplied free of cost" without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.
ii. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the said Act.
iii. 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.
C. Discounts including ‘Buy more, save more’ offers:
i. Sometimes, the supplier offers staggered discount to his customers (increase in discount rate with increase in purchase volume). For example- Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10,000/- and 30% discount for purchases above Rs. 20,000/-. Such discounts are shown on the invoice itself.
ii. Some suppliers also offer periodic / year ending discounts to their stockists, etc.
iii. It is clarified that discounts offered by the suppliers to customers (including staggered discount under „Buy more, save more‟ scheme and post supply / volume discounts established before or at the time of supply) 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, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier.
iv. It is further clarified that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts.
D. Secondary Discounts
i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet.
It is hereby clarified that financial / commercial credit note(s) can be issued by the supplier even if the conditions mentioned in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied. In other words, credit note(s) can be issued as a commercial transaction between the two contracting parties.
iv. It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied.
v. In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied.
vi. There is no impact on availability or otherwise of ITC in the hands of supplier in this case.
