Categories: Legal Opinion

Legal Opinion on Sales Promotion

2021-11-23 | admin

To:XXXXXX
Re:IMPLICATION OF SALES PROMOTION SCHEME UNDER GST
Client:XXXX
Client Representative:YYYYYY
Meeting date:30.08.2019

On the above mentioned date the mentioned person had raised his willingness to have legal validity and functioning opinion from us regarding the “IMPLICATION OF SUPPLY OF TWO PIECES 20GMS TOBACCO PRODUCT AGAINST ORDER FRO SUPPLY OF 10 PIECES OF 50GMS OF THE SAID PRODUCT UNDER THE SCHEME OFFERED TO THE RECIPIENT OF SUPPLY TO BOOST UP MARKETABILITY”

The taxability under GST depends totally on the category of transaction falling under the purview of “Supply”. The term supply is very broad and is governed by section 7 of the CGST Act. Further we could say that supply is categorized under: 

   i. Basic meaning of supply

   ii. Deemed supply as provided in schedule I and II

   iii. Exclusion on being supply as defined in schedule III

According to the basic meaning of supply it is for consideration but Schedule I cover exclusively those transactions which are without consideration and are considered as supply. The clause (a) of Schedule I mention “PERMANENT TRANSFER OR DISPOSAL OF BUSINESS ASSETS WHERE INPUT TAX CREDIT HAS BEEN AVAILED ON SUCH ASSETS” as deemed supply without consideration i.e GST has to be paid on such transaction. 

Now question is whether:

   i. 20 Gms of tobacco is a business asset or not

   ii. Input has been availed on 20Gms Tobacco or not

The term asset includes capital assets and also the stock present with the assessee. As 20gms tobacco products is part of trading stock so it is very much a business asset for the assessee. The concern whether ITC has been availed or not is a very non considerable question as the product being part of normal trading concern, ITC must have been availed in common. Therefore it surely falls under clause A of Schedule I and is hence considered as supply. Which means the assessee needs to discharge GST on the supply of 20gm Tobacco even if it is supplied without consideration. In various Advance ruling same has been confirmed.

Though, if the assessee adds up the value of the Promotional 20gm Tobacco with the normal supply and afterwards, before levying GST, offers the sum as discount then it shall be very much allowable under Section 16 of the CGST Act. As value of any transaction is governed by Section 16 of the CGST Act, it allows discount offered in the invoice as part of valuation for levying GST.

The circular no 92/11/2019- GST dated 07.03.2019 clarified via point B of the circular that

Sometimes, companies announce offers like ‘Buy one, Get One Free’. As per sub clause (a) of sub section (1) of section 7 of the said act, the goods or services which are supplied free of cost shall not be treated as supply under GST ( except in the case of activities mentioned in Schedule I of the said Act).it may appear at first glance that in case of offers like ‘Buy One, Get One Free’, one item is being supplied free of cost without any consideration. In fact, it is not individual supply of free goods but a case of two or more individuals’ supplies where a single price is being charged for the entire supply. It can at best treated as supplying of two goods for the price of one.”

If we consider the circular, it can be easily said that promotional scheme is not supply under GST. But certain point of circular regarding Secondary discount were re clarified on date 28.06.2019 by Circular no 105/24/2019-GST  as extension of circular no . 92/11/2019- GST. Keeping in view the ruling of HON’ High Court in case of RE: MRF LTD, the circular further clarified certain point leaving it highly ambiguous. The clarifications regarding Secondary discounts were further clarified   by the later Circular leaving the clarification by the earlier Circular point less. Therefore in the regime of ambiguity, relying on the present clarification could be inconsiderable as Department may clarify the position further in opposite direction.

Considering the tenacity of the transactions involved and ambiguity in the circulars issued by the department, it is advisable to follow the safe path of discount considering section 7 along with section 16 of the said act.  

The views represented are solely my personal views according to my interpretation of law. It may vary person to person and shall not be categorized or used for any legal reference for any proceeding or hearing. We have been asked by our Client to present with our opinion as stated in this letter.

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