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Recently, the Central Board of Indirect Taxes and Customs (CBIC) issued circular clarifying various issues relating to the treatment of sales promotion schemes. The government has clarified that promotional scheme such as ‘buy one get one free’ (BOGO) and additional quantity for the same price will be eligible for the input tax credit. Hence, this will ultimately bring massive relief to the fast moving consumer goods (FMCG), food, retail and pharmaceutical companies.
Table of Contents
Generally, promotional schemes given on sale are to attract
the customer base or market. Basically, it is a marketing strategy. It
includes different type of discount, incentives on buying, giving vouchers,
etc. Nowadays, businesses use various promotional tools to increase the sale of
their products. Companies will also not
have to pay goods and services tax (GST) separately on the additional product
unless it is a different one facing a higher rate of tax.
The GST council has framed new policies on the following types of sales promotion schemes:
Now let’s try to understand them in detail:
Read our article:The Highlight of 29th GST Council Meeting
or services or both which are supplied free of cost will not be treated as
supply (except in the case of activities mentioned in Schedule I of the Central
Goods and Services Tax [CGST] Act, 2017). However, input tax credit (ITC) will
not be available on the inputs, input services or capital goods to the extent
used concerning such gifts or free samples, except in cases where such gifts or
free samples are treated as a [deemed] supply under Schedule I of the CGST Act.
In the case of ‘buy more save more’ discount depends on the volume. For example, a 10% discount is provided on the purchase of INR 5000, and above and a 20% discount is offered on the purchase of INR 10,000 and above.
Such discounts are shown on the invoice itself. Please note that such
discount offered shall be excluded to determine the value of supply (provided
it satisfies the factors laid down in section 15 (3) of the Central Goods and
Service Tax Act, 2017.
Some suppliers also offer regular / year ending
discounts to their stockists like an additional discount of 1% if you purchase
10000 pieces in a year, get an additional discount of 2% if you are buying
15000 pieces in a year. Such discounts are established in terms of an agreement
entered into at or before the time of supply though not shown on the invoice as
the actual quantum of such discounts gets determined after the supply has been
affected and generally at the year-end. In commercial parlance, such discounts
are formally referred to as “volume discounts.”Such discounts are passed on by
the supplier through credit notes.
Such discount offered shall be excluded to determine
the value of supply (provided it satisfies the factors laid down in section 15
(3) of the Central Goods and Service Tax Act, 2017.
In the case of secondary market schemes, where discounts are announced after the original supply, the supplier can issue commercial credit notes. But, such discounts would not be eligible for any deduction from the value of the supply under section 15(3)(b) of the CGST Act, as it was not known at or before the time of supply. Further, there would not be any impact on the ITC in the hands of the supplier.
Read the viewpoints of various tax experts on this circular
Source: The Economic Times
This seems to be a welcome move, as there were
multiple views established on the GST implications of sales promotional
schemes. Further, it will provide clarity to several sectors. A lot of certainties
would develop in the GST treatment of sales promotion schemes. There have also
been reports of tax authorities launching investigations on various assessees
on such schemes, and this circular will put all such disputes to rest while
giving clarity to the industry on how to devise sales promotion schemes in the
For any additional information, you can reach to our team of experts or write to us at firstname.lastname@example.org.
Further, you can read the complete notification.
Read our article:No agreement on why Consumer Goods Demand Rose after GST
Mr. Neelansh Gupta is a Legal Counsel having extensive in-depth knowledge of various laws. He has completed his graduation in law and has experience in IPR, Taxation and Corporate laws.
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