CBIC clarifies on levy of GST on sales promotion schemes

The CBIC Thursday clarified on the vexed issue of levy of GST on sales promotion schemes like 'buy one get one free' offered by FMCG firms, saying taxes would be paid on the price recovered from the customer.

The Central Board of Indirect Taxes and Customs (CBIC), under the Finance Ministry, said that in case of offers like Buy one, Get one free' it may appear at first glance that 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'," the CBIC said.

PwC Partner and Leader Indirect Tax Pratik Jain said it has been clarified that 'under buy one get one' scheme, GST would be paid on the price recovered from the customer without reversing the input credit.

With regard to free samples and gifts', like in the pharmaceutical industry to provide drug samples to their stockists, dealers and medical practitioners without any consideration, the CBIC said this shall not be treated as supply under GST and hence will not be liable to tax.

"Samples which are supplied free of cost, without any consideration, not qualify as supply under GST," the CBIC said.

Under Goods and Services Tax law supply includes all forms of supply of goods or services such as sale, transfer, barter, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business.

Jain said the clarification on tax treatment of sales promotion schemes under GST is a welcome relief particularly for FMCG and Pharma, where these promotional schemes are very common.

"The clarification would help in reducing avoidable litigation and is line with global practice," he added.

EY Tax Partner Abhishek Jain said, "The explicit clarification on availability of credit on goods supplied under 'Buy One Get One Scheme' would be quite welcome by most industry players.