Impact of GST on Promotional Schemes/Free for Sampling, Donation etc

Generally promotional schemes given on sale to attract/penetrate customer base or market. Basically it is marketing strategy. It includes different type of discount, incentives on buying, giving vouchers etc.

Under GST giving promotional schemes may result into maximum liability because nothing is free in GST regime, so before effecting promotional schemes need to understand provision of GST & its impact. Composite supply u/s 2(30) of CGST Act, 2017 “Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration.— Where goods are packed and transported with insurance, the supply of

goods, packing materials, transport and insurance is a composite supply and supply

of goods is a principal supply.

“Mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Illustration.— A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; As per section 8 of CGST Act, 2017, Tax rate on composite supply shall be rate of principle supply, and Tax rate on mixed supply shall be which attract highest rate of

tax.

1. Buy one get one free scheme: Under this on buying one product one product is given free of cost, earlier was allowed as not VAT is applicable due to out of definition of sale. But in GST this is considered as deemed supply as per schedule-I of CGST Act, 2017, “Permanent transfer/Disposal of business assets where input tax credit has been availed on such assets.” Hence, these

types of transaction are deemed supply and accordingly taxable. Value of such supply shall be open market value of like kind product on the day or if not ascertainable then 110% of cost of production.

Alternatively, propionate input tax credit shall not be available in pursuant to provision of section 17 of CGST Act, 2017. 
2. Supply as Sample, donation, charity, free gift, Free of Cost etc: As per section 17(5)(h) are block credit and hence not input tax credit be available accordingly require to reverse input tax earlier availed.

3. Sale Discount: As per valuation provision & rule of CGST, discount is allowed if it is before supply written on invoice. Meaning if a product is of Rs 100 given on discount of 10% and same is shown over invoice then Rs 90 is taxable & GST shall be calculated accordingly. Post supply discount is not allowed in GST.

4. Turnover, quantity discount: This type of discount shall be allowed only when they are written under contract or agreement then same shall be deductible from taxable value.

5. Sale of Voucher: Sale of vouchers is taxable and value & their nature to be determine from voucher for which it is given. Taxation of the same shall be, if value & nature of supply is determinable, at time of issue or otherwise at time when it is redeem.

ONE TIME CUSTOMER: Generally one time customer under B2C category. According to law, who is not registered under GST are B2C category. As GST Return prescribed by Govt. require reporting of the same in following

categories:

1. One is B2C Large where invoice value is more than Rs 2,50,000/-, whose reporting to be done on invoice level, HSN, rate wise and State wise.

2. B2C (Small) where invoice value is less than Rs 2,50,000/-, whose reporting to be done on HSN, State-wise, rate wise. Provided where value of invoice is more than 50,000/- records of address of customer require to be maintain and print over invoice. Where transactions made who have GSTN, should be category of B2B and proper customer master to be maintain for better reporting.