GST: CBIC Agrees ITC Eligibility on Sales Promotion Schemes

The FMCG (fast moving consumer goods), retail, food, and pharmaceutical companies can now sigh in relief because the government have read their minds and clarified that the ITC (Input Tax Credit) will also be applicable for promotional schemes like the ‘buy one get one free’ (BOGO) and with the same price and extra quantity.

Now, the GST will not be levied separately on the extra product except for the separate products having a higher tax rate. The companies will not have to reverse the ITC which has been taken for such products. The circular said “Taxability of such supply will be dependent on whether it is composite or mixed. The rate of tax will be determined as per section 8 of the (GST) Act”.

This step is taken because the government sent many notices to the industries but they just ignored it. The notice was for the FMCG and pharmaceutical sectors in which it was written that the companies have to reverse the ITC for the cases like the offers and promotions and ordered them not to encourage such things.

In the circular, it is written that the ITC must not be reversed from the BOGO offer in which it gets the recovered price of the offer from the customers. It said, “The supplier shall be entitled to avail input tax credit for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts”. ITC will also be applicable to the companies that offer ‘buy more, save more’ scheme.

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If any adverse thing happens with the goods then the ITC must not be applicable to the supplier on inputs, capital goods and input services. In short, we can say that GST will not be levied on gifts and free samples among the pharmaceutical companies.

Aforementioned, after listening to this the companies will sigh in relief. Suresh Nandlal Rohira, partner, Grant Thornton India LLP said: “The ordeal has come to an end due to this clarification and is a welcome move for many industry players to stop preparing for litigation”.

The experts also think that the subsidy issued by retailers or dealers from the companies must also be clarified by the government. Commenting on this issue, Anita Rastogi, partner, PwC said “A long-awaited clarification has now been issued. Many aspects have been covered, though the one relating to subsidy has not been addressed. It will be good if that too is clarified,”.

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