GST Input Tax Credit on ‘Buy One, Get One Free’ Offer

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.

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