Free supplies of goods and services have been frequently used by businesses to promote their products in the market. The situation arises when the receiver/ buyer tries to obtain good quality material at a bargained price in the market. It will be beneficial for the receiver to keep the value of the product at factory-priced or the value of services at low-cost budgets.
Before the implementation of the new indirect tax regime, there have been enormous legal proceedings that, does Central Excise Duty, Customs Duty, or Service Tax will be imposed or not on the free supplies of Goods/ Services.
Generally, the government authorities are opposed to permitting the value of supplies of goods/ services, until some particular compliance is mentioned under the laws. Post GST implementation, the main question that arises is whether the taxes will be applicable to the free supply of goods and services or not.
According to Section 9 of the CGST Act, there is a charge implied on supply. Supply in further terms has been defined under Section 7 of the Act, as “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”.
Therefore, under this section when there is a consideration made, then it can be considered supply and when there is no consideration or exchange of money under GST, the taxes will not be imposed on the free supply of goods and services.
Before the implementation of the GST Regime, the tax was levied on the free supply of goods and services are described below:-
- Under the Central Goods and Services Tax (CGST) Act, the tax was levied on the supply of goods and services from the customer to the manufacturer. This was mentioned and explained under 1 to Rule 6 of the Valuation Rules.
- Under the Customs Duty Act, customs duty was applicable on the imports of free supply of goods to the importer. The rules are determined under Rule 10(1) of Customs Valuation Rules.
- Under Finance Act 1994, the service tax was imposed on the free supply of goods to the receiver. This is mentioned under notification 11/2012 – ST dated 17.03.2012 in respect of Works Contract Services as defined in the Act.
Read Also: GST: Impact of New Taxation Structure on Works Contract
Under Finance Act 1994, the service tax was imposed on the free supply of goods to the receiver. This is mentioned under notification 11/2012 – ST dated 17.03.2012 in respect of Works Contract Services as defined in the Act.
Section 15(2) The transaction value under subsection (1) shall consist – of “The value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at a reduced cost for use in connection with the supply of goods and/or services being valued, to the extent that such value has not been included in the price actually paid or payable.”
From the above statement, clarifies that the government authorities have added some special compliances under the GST law, wherever it was deliberate to include the free supplies of goods for imposing suitable taxes.
On the basis of Section 15 of the CGST Act as well as CGST Valuation Rules Prescribed under (Chapter IV), it is observed that the legal proceedings concerned eliminated
Now on examination of section 15 of the CGST Act and the CGST Rules on Valuation (Chapter IV), it is seen that the legislature has consciously omitted to add the provision contained in GST model law (as stated above) on free supply. That means the GST law does not lay down any situation where the value of a free supply of goods/services to the recipient in the course or in furtherance of business, can be taxed.
Input Tax Credit Reversal on Free Supplies of Goods and Services
Under Section 16 (1) of the CGST Act regarding Input Tax Credit (ITC). In this section, it has mentioned that every registered person under GST is eligible to avail of the input tax credit on any supply of goods and services that can be used in the course or furtherance of business. A person is entitled to avail the credit if the inputs or input services supplied are used ‘in the course or in furtherance of business. Thus, there is no requirement in law that inputs of input services must be used for making taxable supplies only, mere use in the course or furtherance of business is enough.
The above statement, clarifies that a registered person is eligible to utilize Input Tax Credit on all types of supplies, that can be used in creating free supplies, such types of free supplies are created in the course or to promote business.
However, Goods, as well as services, are both used for business purposes and considered as a matter of principle, ITC is allowable. But, there are some specific exceptions regarding this general principle and all of the exceptions are determined under Section 17. If in case the government denies providing ITC or asks for the reversal of the credit, it has to be established that ITC availed comes under any of the exceptions of Section 17. If the revenue is unable to get established, the government authorities are liable to maintain the right of revenue entailment of the receiver.
If the exceptions or matters are covered under Section 17 of the CGST Act, then the receiver is eligible to reverse the credit.
Let us understand with an example, whenever the goods are supplied free of cost, and the goods are lost or destroyed, then the ITC has to be reversed. Section 17 (5) (h), deals with the denial of credit.
Furthermore, no supplier distributes any of the goods for free. The goods distributed free are already included taxes such as logistics, marketing and so forth and the taxes being paid by the supplier.
As per the above statement, no reversal of credit will be required for inputs services that can be used in creating free supplies, as such there is no particular compliance mentioned under the law for the reversal of GST credit tax suffered on free supplies of goods.
GST Payment on Free Supplies
Whenever the goods are supplied free of cost, as such no compliances are involved and thus, the supply would not consider a taxable supply, as per section 7 of the CGST Act.
Free Supplies and Job Work
Whenever free supplies of goods/ services are provided to the receiver, the ownership remains the same with the supplier. Thus, the free supplies of goods and services do not come under the definition of ‘works contract‘ under section 2 (119), so no transfer of property in goods is included.
Whether Rule 42 is applicable for free supply of samples i.e., reversal of ITC availed on common input services as per rule 42 , have to reverse along with ITC availed on raw materials used for manufacture of said free samples or not, please clarify.
Yes
Supply expired stock to the vendor for destruction at zero value- ITC is revered on the purchase value.
Do we need to issue a bill of supply (non-GST) – Can we send the stock on manual Gate pass – without GST series bill of supply
Please contact to GST Practitioner
Sir, if we import goods (free of cost and for sampling purpose), and all the formalities like custom clearance (duty payment, IGST payment ) done by supplier own. whether we claim ITC on such import if payment made by the supplier itself?
Also if custom clearance is done by Logistic (like DHL Express) payment of duty and IGST done by DHL and later they issue invoices regarding reimbursement of duty and IGST.
whether we claim ITC paid by them on such imports?
(In the bill of Entry both cases above GST no. is mentioned of Receiver.)
No
Can you please explain with some reasons why?
My client is sending Taxable items to Srilanka as a sample. He is a manufacturer. whether GST attract or not? and How much value entered in Bill?
Any goods distributed as samples without any consideration then it does not come under the ambit of ‘supply’ under the Act.
sir if sell one kg ghee at 700 re and along with giving a gift of pain relief balm which I bought from market with has a GST charged 20re.
can I avail the input credit of this 20re while giving it free with my main sale of ghee at 700 …
“GST is applicable to the supply of goods/services for consideration. However, in certain cases even if the business disposes off the assets for free, they are required to discharge GST on such disposed asset”
I want a new GST number for kirna shop
how to calculate GST on BUY 2 GET 5 OFFER, PLEASE EXPLAIN WITH CALCULATION
GST is applicable on 2+7 quantities amount at the rate which is applicable on those products
Kindly go through the clarification on this point issued by CBIC circular no 92/11/2019 dated 7th March 2019.
Free samples are not taxed but ITC is not available
Buy one get one free is not taxed but ITC is available
As I went through same, it doesn’t say that “buy one and get one free” aren’t taxed. It says Taxability of buy one get one free kind of supply will be dependent upon as to whether the supply is a composite supply or a mixed supply. Hence they will be taxed indirectly. ref- Section 8 of CGST ACT.
Taxability of buy one gets one free kind of supply will be dependent upon as to whether the supply is a composite supply or a mixed supply. Rate of tax shall be determined as per the provisions of section 8 of CGST Act. As per section 8, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax
ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods and services as part of such offers.
Dear sir, I purchase an empty bag which is taxable and I use these bags to pack GST exempted goods. Should I claim GST of an empty bag? Also, I have purchased a t-shirt for free distributors to workers and customers. Should I claim input?
with thanks
No ITC is available against supply of exempted goods. If you are exclusively dealing in supply of exempted goods then no ITC will be available.
How to show the free of cost supply with the taxable item’
the example we have offering if u buy 10 ltr we will give u 1ltr extra.
In this case how to make the bill?
In this case, if you make the bill for free supply including taxable supply then the tax shall be charged on a single price offered in the invoice as sale value.
please give an example
Free supply transactions:
Income received as a discount without GST, now the question is how to put it annual return ie exempted, NIL rated.
Please specify the nature of interest received. Interest received from the local entity (bank, company) is payment for an exempt supply of financial services. Thus it is an exempted supply.
Whether Free Supplies made by Pharmaceutical Companies to Stockiest or Retailer are Taxable? E.G. 100 Strip with Free 20? What is the tax implication on Free Supplies? Taxable or Reversal of Input Tax Credit of Free Supplies. Kindly refer me any notification or Circular in this Regard. Thanks
No free supplies are not taxable. But input tax credit on free supplies needs to be reversed. Refer to definition of supply provide4d in Section 9 of CGST Act and Rule 42 and 43 of CGST rules, 2017 to see the provisions regarding this.
If I give a machine to a client with the understanding that the client will buy reagents for operating the machine for the lifetime of same from me, and reagents are sold and taxed under GST then is the supply of machine liable to GST? Also if not, is the ITC reversal required as this is a supply for the furtherance of business?
We have received FIM from the supplier of Yamunanagar. Base plate directly sends to our sister consent Multai “(M.P.) & Inconel plate import, dispatch Kalmboli to Multai. How to prepare DELIVERY CHALLAN & INVOICE.
In both the cases, if you are not supplying the goods but just sending them to your sister concern after purchasing them, then you need to prepare only delivery challan for such transport of goods.
If a pharma manufacturing company gives its products as the sample to their customers, traders without mentioning the word – free sample – on the package, is it liable for payment of GST by raising a Tax Invoice.
S.DURAIRAAJ
RAJAPLAYMAM.
No it is not
I have supplied some material free of cost to the customer under warranty. Do I need to reverse input credit for the material I have supplied?? Please clarify quoting relevant provision of GST.
Yes, you need to reverse that portion of credit attributable of free supply of goods
We are a pharmaceuticals manufacturer, having two types of manufacturing activities, one is job work and second direct sale.
As per FDA regulation, we have to remove Samples of Raw, Packing & Finished Goods for testing purpose.
We want to know the GST rule and procedure. How to remove from stock and which document we have to prepare for the same or we have to reverse ITC against the same or we have to pay GST against QC sample
In case physician samples are removed same is to be done under cover of the bill of supply and no tax is required to be paid as GST. Further input tax credit availed on same need to be reversed on cost.
Hi, I have a business of Pharmaceuticals Products naturally free supplies are made in our business. e.g. 100 Strips + (20 Strips Free Supplies). As well as Free Sample to Doctors. Whether GST is leviable o Free Supplies & Free Samples, if yes on what price? Whether ITC reversal provision is applicable for free Samples or Free Supplies or not?
Kindly reply
As per the definition of supply any supply made without consideration is not chargeable for GST. therefore, free samples shall not fall within the ambit of GST. Since free samples shall be treated as no supply any ITC availed on inputs/inputs services used in manufacturing such free samples shall need to be reversed.
I have Given Free Services of Advt. to some people. Do I need to Issue a NIL invoice to that person or I just don’t require to show that services nowhere?
In case free services are provided such transaction is not treated as the supply of goods and services and as such, there is no requirement to issue an invoice as per GST act but you can issue an invoice for your records.
What are the documents required for sending a Free Sample to my supplier who is in abroad as later I will be buying the materials from them? (Here documents means, Do I need to prepare any Invoice for the same & will Tax arise?)
Sample value will be maximum up to 5000 INR
Please suggest.
Another query is as below.
Dear Sir/Madam,
Refer to the email subject we have few queries related to GST Tax Input Credit & Export Sales.
Below is the scenario.
We are the manufacturer of Sheet Metal Components/Panels/Cabinets etc. & are registered here in Maharashtra, Navi Mumbai under GST with having a valid GST registration No. We have a client which is a foreign entity & is not registered here in India. They have placed an order to us & have asked to deliver the material to their one of the client who is established in India & having their GST registration in multiple states. We will be receiving our payments from our client who is outside India.
Based on above we have following queries: –
1. What kind of Sales Invoices, we need to issue to our client. (Will it be a simple Tax Invoice/Export Sales Invoice)?
2. Since physically we are not dispatching the materials outside India (Export), as the ship to address will be somewhere in India & Place of Supply will be according to that. (Do we still need to raise an Export Sales Invoice just because our Bill to Party is outside India or we can raise a Normal Tax Invoice to the client)?
3. What is the proper way to complete this transaction by following the GST rules?
4. In case, we can raise a Normal Tax Invoice to the buyer, Will the ship to address, Consignee, able to Take the GST Tax Input Credit?
5. Is there any other way for GST Tax liability exemption under any circumstances? (LUT or Bond) & that’s also without entering into an SEZ Area because that will again attract additional expenses & the landing cost will increase.
Hope the concerned will do the needful & will respond accordingly.
A prompt & the positive response will be highly appreciated.
What is the maximum value of free goods which can be exported now?
There is no maximum value for free goods to be exported.
We want to send some free sample to our US customer for approval. Now, what is the procedure to be followed in under GST rule?
In case free samples are to be sent such supply is made without consideration, therefore, such not be liable for GST. Normal export provisions for sending such samples need to be followed.
hello… my business is propaganda cum distribution business in pharma… I purchase finished products from the manufacturer in my company name along with the item brand name.. I have the deciding authority to sell my brands at my own pricing(MRP OF THE PRODUCT) and scheming (BUY 10 STRIPS GET 2 STRIPS FREE). SO should I charge the GST tax for the free strips.. kindly do help me…
GST is not charged on free strips as according to Section 7 the definition of tern supply says all forms of supply of goods or services made or agreed to be made for a consideration in the course or furtherance of business. GST is charged on the supply of goods so anything supplied without consideration i.e. free of cost shall not be liable for GST.
Our supplier from Maharashtra wants to send some samples(free of cost) to our Kochi branch in Kerala. what are the documents he needs to carry sample goods to Kerala?
In the case where transportation of goods take place without supply being affected as in above case free samples to be sent to Kerala branch, delivery challan needs to be accompanied while transporting goods containing details of goods taken as free samples and details of consignor and consignee.
Sample 10pcs, 20pcs, 30pcs, 40pcs of very small value like US$ 0.1 each. Duty is paid already by BUsiness unit in China DHL account.
For Example: Sample sent from China to India (Bangalore) I need to send these sample to different customers across India. Our billing during mass production happens in US$.
Now my local team is telling they cannot give document as I do not have billing entity in India. Also, they are not allowing me to use manual challan for the sample shipment from Bangalore to other location.
what can I do?
After implementation of E-Way Bill w.e.f. 1.4.18, how FMCG companies to send 10 free items along with the purchase of 100 taxable items by distributors as E-Way Bill doesn’t accept taxable value as Zero?
I want to send my goods to the customer by air with hand carry, how can I make e-way bill?
Billing Process of free sampling goods sends to market.
Under GST free samples will not be charged to tax, so the bill of supply has to be issued.