Promotional
schemes such as ‘buy one get one free’ (BOGO) and additional quantity
for the same price will be eligible for input tax credit, the government
has clarified, bringing huge relief to fast moving consumer goods
(FMCG), food, retail and pharmaceutical companies.
Companies will not have to pay goods and services tax (
GST)
separately on the additional product
unless it is a totally different
one facing higher rate of tax. They will also not have to reverse input
tax credit taken for these. “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,” the circular said.
The clarification comes after several representations from the industry.
A number of companies in the FMCG and pharma sectors had been served
notices by tax authorities, asking them to reverse input tax credit in
case of such offers, prompting many to drop such schemes.
The circular has clarified that GST for BOGO offers would be paid on the
price recovered from the customer without reversing the input credit.
“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,” it said. Companies
offering schemes such as ‘buy more, save more’ will also be entitled to
avail input tax credit.
In respect of goods lost, stolen, destroyed, written off or disposed of
by way of gift or free samples, it is clarified that input tax credit
shall not be available to the supplier on inputs, input services and
capital goods. There will no GST on gifts and free samples, prevalent
among pharma companies.
Tax experts say this is big relief for the industry. “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,” said Suresh Nandlal
Rohira, partner, Grant Thornton India LLP.
However, experts also feel the government should clarify the
issue of subsidy given by companies to dealers or retailers. “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,” said Anita Rastogi, partner,
PwC.