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 a 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 a 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.
Source: Economic Times