Circular issued for clarifying - treatment of various sales promotion schemes under GST

This is to update you that CBIC has issued a circular 92/2019 dated 07 March 2019 clarifying taxability, valuation, availability or otherwise of Input Tax Credit (‘ITC’) in the hands of the supplier with regards to the sales promotion schemes under GST.  We have tabulated below the scenarios/schemes on which such clarification has been issued by the Government for your ready reference –

S.No.	Sales promotion scheme	Reference to provisions / basis of clarifications issued	Clarification on ITC availability
1	Free samples and gifts	- In such scenarios, suppliers supplies free samples etc. to their stockists, dealers, distributors etc. without charging any consideration. - Reference is made to sec. 7(1)(a) of CGST Act 2017, where 'supply' has been defined to include all forms of supply of goods or services or both agreed to be made for a consideration by in the course or furtherance of business. - Therefore, the goods or services or both which are supplied free of cost (without any consideration) shall not be treated as "supply" under GST (except in case of activities mentioned in Schedule I of the said Act) - 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 has been clarified that ITC 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.
2	Buy one get one free offer	- In such scenarios, suppliers are supplying goods under "Buy One, Get One free" schemes For example, 'buy one soap and get one soap free' or 'Get one tooth brush free along with the purchase of tooth paste' and it may so appear that the free commodity has been supplied as free of cost without any consideration and hence not a supply under GST. -  The above scenario has been interpreted in a way that 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 i.e. supplying two goods for the price of one	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.
3	Discounts including ‘Buy more, save more’ offers:	- In such scenarios, suppliers are offering to - a) customers with a scheme where discount is linked to the purchasing value say 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10,000/ etc and b) stockists, dealers and distributors with a scheme which may be purchase linked say, discount of 1% if they purchase 10000 pieces in a year, additional discount of 2% on purchase of 15000 pcs. and so on. - Discounts given to customers are required to be shown on invoice while the discounts offered to dealers and distributors are required to established in terms of an agreement entered into at or before the time of supply. - Further, such discounts gets determined after the supply has been effected and generally at the year end and are known as “volume discounts”. Such discounts are passed on by the supplier through credit notes. - It has been clarified that such discounts shall be excluded to determine the value of supply provided they satisfy the parameters laid down in section 15(3) of the CGST Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount.	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
4	Secondary Discounts	Such discounts are offered by suppliers post the supply has been made and where the terms of the discounts were not pre agreed.  In other words, the conditions laid down in sec. 15(3) of CGST Act are not satisfied in this case. In such cases, it has been clarified that credit note prescribed u/s 34 of CGST Act cannot be issued and the transaction may be settled by issuance of a commercial credit note / financial credit note. In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above or by any other means, except in cases where the provisions contained in 15(3)(b) of CGST Act 2017 are satisfied.	No impact on availability or otherwise of ITC in the hands of supplier in this case

TBM  Comments

• Above mentioned promotional schemes are offered by suppliers to increase sales volume and to attract new customers for their products and is very common in industry practice.
• This circular provides clarity on the availability of ITC on various schemes which may help the suppliers to plan the schemes accordingly keeping in mind the credit availability in each of the scenarios.
• It may be important for the suppliers to revisit the terms of the agreements with the dealers and distributors to evaluate such scheme offerings made in course of their business.