Circular No.: 92/11/2019-GST
Date of Circular: 7th March 2019
Relevant Sections and Rules:
- CGST Act, 2017:
- Section 7(1)(a): Definition of supply
- Section 15(3): Valuation – Discounts
- Section 17(5)(h): Blocked credit – gifts/samples
- Section 34(1): Credit notes
- Section 168(1): Power to issue instructions
Summary of Circular:
This circular provides comprehensive clarification on the GST treatment of various sales promotion schemes, particularly regarding taxability, valuation, and eligibility of Input Tax Credit (ITC).
- Free Samples and Gifts:
- Not treated as supply under Section 7(1)(a) as no consideration is involved (unless covered by Schedule I).
- ITC is not available on goods/services used for such free distribution [Section 17(5)(h)].
- However, if such activity qualifies as a supply under Schedule I, ITC is allowed.
- Buy One Get One Free Offers:
- These are not free supplies but a single combined supply offered at a promotional price.
- Taxability depends on whether it’s a composite or mixed supply, per Section 8.
- ITC is allowed for inputs/services used in such promotions.
- Discounts Including “Buy More, Save More”:
- Staggered or volume-based discounts are allowed under Section 15(3), provided:
- Agreed at or before the time of supply,
- Passed via invoice or credit note,
- Recipient reverses proportionate ITC.
- ITC is allowed on inputs and capital goods used to make such discounted supplies.
- Secondary Discounts (Post-Supply Reductions):
- These are not known at the time of supply and often adjusted via commercial credit notes.
- Such discounts do not qualify for value exclusion under Section 15(3)(b).
- Value of supply remains unchanged, and no GST adjustment is allowed.
- However, ITC is not affected for the supplier.
Source: Circular No.: 92/11/2019-GST