Usually, business entities in the Fast-Moving Consumer Goods (FMCG) sector announce ‘buy one, get one free’ offers / schemes. These are directed towards better sales traction.
CBIC CIRCULAR
Barring activities or transactions specified in Schedule I of the CGST Act, goods or services supplied free of cost (that is, without consideration) are not treated as ‘supply’ under Section 7 ibid. It would appear one item is supplied free of cost in such offers. However, it is not an individual supply of free goods. Rather, these are two or more individual supplies wherein a single price is charged for the entire supply.
Undoubtedly, the tax rate on such supply is dependent on whether it is a composite or mixed supply as per Section 8 ibid. Nevertheless, Input Tax Credit (ITC) is available to the supplier for the inputs, input services and capital goods used for effecting such supply. This was unambiguously clarified by the CBIC vide Circular No. 92/11/2019-GST dated March 07, 2019.
CONTRARY ADVANCE RULING
A taxpayer offered one unit of dhoop with a pack of agarbatti (comprising 10 pieces of agarbatti). The Authority for Advance Ruling ruled[1] that ITC is not eligible on inputs used for manufacture of dhoop (or) on purchase of dhoop from third party vendor(s).
Similarly, the taxpayer offered one unit of agarbatti free on purchase of one carton box of agarbatti. Here too, it was ruled that ITC is not eligible on the agarbatti given free of cost.
[1] Ruling Order No. GUJ/GAAR/R/14/2019
AUTHOR’S COMMENTS
From the Order, it appears the GST Department provided its comments vide letter dated April 20, 2018. The Order of the Authority is dated August 23, 2019, post the issue of the aforesaid Circular. Yet, there is no reference to the said Circular in the Order.
Further, according to Section 98(6) ibid, the Authority should pronounce its ruling within 90 days from the date of receipt of application for advance ruling.
