The Gujarat High Court has issued notices to the Centre, state government, GST Council, and indirect tax board in a case related to denial of input tax credit on gifts or free samples given by companies.
A petitioner sought declaration of the section 17 (5) (h) of the Central GST Act and associated circular as unconstitutional to the extent that it restricts input tax credit on gifts and free samples. The section provides a list of items where input tax credit cannot be given such as rent a cab. However, the section does not mention gifts and samples.
As the confusion arose whether the credit would also be blocked for gifts and free samples, firms, including pharma ones, approached the government for clarification.
The CBIC came out with a circular in March, which stated samples that are supplied free without any consideration do not qualify as supply under the GST.
Abhishek Rastogi, Counsel of the petitioner and partner at Khaitan & Company said, "The denial of credit on goods disposed of by way of gifts or free samples should e examined in the light of the statement of objects and reasons and the Section 16 of CGST Act".
He said the Section and the statement of the object provide that credit be availed of with respect of supplies made in the course of furtherance of business.
He said the denial of the credit would lead to tax cascading which is against the principles of GST.