TMI Blog2019 (6) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... uy 1000 Get 150 free is clearly covered by Para B of the said Circular. Hence in such cases it will not be an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one. In the case of Buy 100 Get 10 free it will be 2 individual supplies, each of 100 packs and 10 packs for the price of 100 packs. In such a case taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of Section 8 of the said Act - Further, ITC shall also be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers. The situation mentioned at Para(C) of the Circular mentions situations whether value discounts are envisaged and therefore will not be applicable in the subject case where value discounts are not contemplated - The situation mentioned at Para(D) of the Circular mentions situations where discounts are not known at the time of supply or where d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt supplies or free samples and hence attract the provisions of Section 17 (2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17 (5) of the CGST Act, 2017? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression GST Act would mean CGST Act and MGST Act. 03. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE QUESTION (S) RAISED a. M/s. Golden Tobacco Limited, owner of famous brands of Cigarettes such a Gold Flake , Panama etc., having their principal place of business at TOBACCO HOUSE, S.V. ROAD, VILE PARLE, MUMBAI, MAHARASHTRA - 400 056 (hereinafter referred to as the Applicant ) is holding GSTIN No. 27AAACG1421A1ZH for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of additional quantity of Cigarettes packs received within the price of the original quantity to their stockists or retailers, as the case may be. d. Based on the above the Applicant seeks clarification/ suggestion/ validation from the Hon ble Advance Ruling Authority as under: (a) In the above transaction, whether the extra packs of Cigarettes would again be leviable to GST? (b) If yes, the taxable value which can be attributed to such extra packs of Cigarettes for levy of GST? (c) Whether extra packs of Cigarettes would be considered as exempt supplies or free samples and hence attract the provisions of Section 1 7 (2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 or clause (h) of Section 17 (5) of the CGST Act, 2017? 3a. Statement containing Applicant s interpretation of law in respect of the aforesaid questions i. The Goods and Service Tax (GST) regime has introduced the concept of supply as a taxable event while doing away with the erstwhile taxable events of manufacture, sale, service etc. ii. The Section 7(1) of the CGST Act, 2017 as was in force before amendment cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire quantity of Cigarettes supplied under the said Invoice, including the additional quantity. Hence, it cannot be a case of free supply without consideration and thus such supply of original quantity along with additional quantity would be supply as indicated in clause (a) to sub-section (l) of Section 7 of the CGST Act, 2017. The Applicant seeks validation to this effect from the Hon ble Authority for Advance Ruling. vi. As per sub-section (I) of Section 15 of the CGST Act 2017 the value of supply of goods or services or both shall be transaction value, which is the price actually paid or payable for the said supply of goods or services or both when the supplier and theater the recipient of the supply are not related and the price the sold consideration for the supply. The sub-section (3) further states that the value of the supply shall not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply. vii. The taxable value shown in the Invoice for the reason that no additional consideration will be receivable from the Distributor in respect of the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be unveiled by the company will be applicable for all our distributors. 2) As per this new sales promotion strategy the Applicant intends to supply additional packs of Cigarettes along with regular supply of cigarettes of a particular quantity, without receiving any additional consideration. In other words a specific number of cigarettes/cigarette packs will be supplied to our customers along with a particular quantity purchased for the price of that particular quantity. The scheme which is intended to be offered by applicant will be as follows of; a. The company plans to offer an additional 10 packs of cigarettes on purchase of 100 packs of cigarettes and this offer will remain steady, i.e. if a distributor places an order for 100 packs of cigarettes we shall offer an additional 10 packs of cigarettes. The distributor will pay for 100 packs of cigarettes and will receive 110 packs. Thus in this case what we will be doing is making two individual supplies, i.e. of packs of cigarettes of 100 packs and 10 packs and the said supplies same will be made for the price of 100 packs. We will deliver 110 packs of cigarettes at the price of 100 packs. In this sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional quantity would not indicate that the same are free supplies or are in any manner different from the packs of Cigarettes in the original quantity. 6) Applicant would like to bring attention of the Honourable Authority that there has been development in our case post the filing of our Advance Ruling Application. The CBIC has issued a circular with File Number 92/11/2019-GST dated March 7, 2019. Wherein they have provided clarification on various doubts related to treatment of sales promotion schemes under GST. The government has examined various schemes and clarifications on the aspects of taxability, valuation, availability or otherwise of Input Tax Credit in the hands of the supplier in relation to following schemes : a) Free samples and gifts b) Buy one get one offer c) Discounts including Buy more, save more offers d) Secondary Discounts 7) Applicant would like to reproduce scheme number (b) Buy one get one offer. Extract of scheme which is as under - (i) Sometimes, companies announce offers like Buy One, Get One free for example, buy one soap and get one soap free or Get one tooth brush free al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re shown on the invoice itself. (ii) Some suppliers also offer periodic / year ending discounts to their stockists, etc. For example- Get additional discount of if you purchase 10000 pieces in a year, get additional discount of 2% if you purchase 15000 pieces in a year. Such discounts are established in terms of an agreement entered into at or before the time of supply though not shown on the invoice as the actual quantum of such discounts gets determined after the supply has been effected and generally at the year end. In commercial parlance, such discounts are colloquially referred to as volume discounts . Such discounts are passed on by the supplier through credit notes. (iii) It is clarified that discounts offered by [he suppliers to customers (including staggered discount under Buy more, save more scheme and post supply volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding subsidies provided by the Central Government and State Governments. Explanation. -For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy: 3) The value of the supply shall not include any discount which is given (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if (i) such discount is established in terms of an agreement entered into at or. before the time of such supply and specifically linked to relevant invoices, and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. 12) According to section 15(3)(a) of CGST Act if discount is displayed on face of invoice it has to be excluded from value of goods. The applicant is providing discount on sale of extra quantity at the time of sale of cigarettes packs. Therefore discount is allowed to be deducted from value of invoice. Additionally it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.l,150/- [₹ 1,000+ ₹ 150 (discount/promotional scheme at the @ 15%)] and the duty @10% on this consignment shall be paid by supplier S that will be amounting to be ₹ 115/-. Now to avail the benefit of the Section 15(3) of the CGST Act, 2017 the recipient of the supply R would take credit of the full amount of the duty paid by him that is ₹ 115/- however, the recipient R Shall have to reverse the credit of ₹ 15/- attributable to the discounted amount of ₹ 150/- as indicated clearly in the invoice in the instant case. Para 14 (i): Yes, as discussed above. Para 14 (ii): As discussed above in reply to the Para 13. Para 14 (iii): No, it is not exempt supply (as discussed above). 04. HEARING Preliminary Hearing in the matter was held on 06.03.2019. Sh. Parannan Namboodri, Advocate and Sh. Niketan Dhumal, Advocate appeared and requested for admission of application as per details in their application. Jurisdictional officer was absent. The application was admitted and called for final hearing on 16.04.2019. Sh. Vishal Sheth, C.A., appeared made oral and written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid the distributor will pay for 1000 packs of cigarettes and will receive 150 packs. Thus in this case they will be making two individual supplies, i.e. of packs of cigarettes of 1000 packs and 150 packs and the said supplies same will be made for the price of 1000 packs. Here they have stated will be a case of staggered discounts to distributors so that they buy more and get more and in the process increase or sales and thereby growth. The Applicant has also submitted illustrations in their submissions which are mentioned above. The jurisdictional office has cited the provisions of Section 15(3) of the CGST Act and submitted that a careful reading of the said Section indicates that the benefit of discount in value is available only to the recipient of the supply and not to the supplier i.e. the applicant in the instant case. The jurisdictional office has further submitted that the condition prescribed for availing the benefit of the value discount is also available only to the recipient of the supply and not to the supplier i.e. the applicant in the instant case. After perusing both the submissions we find that whereas the applicant is desirous of giving a qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Act. ii. Further, clause (h) of sub-section (5) of section 17 of the said Act provides that ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of supply on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC. B. Buy one get one free offer: i. Sometimes, companies announce offers like Buy One, Get One free For example, buy one soap and get one soap free or Get one tooth brush free along with the purchase of tooth paste 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 (without any consideration) shall not be treated as supply under GST (except in case of activities mentioned in Schedule I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier. iv. It is further clarified that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts. D. Secondary Discounts i. These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at ₹ 10/- per packet. Afterwards M/s A re-values it at ₹ 9/- per packet. Subsequently, M/s A issues credit note to M/s B for ₹ 1/- per packet. ii. The provisions of sub-section (1) of section 34 of the said Act provides as under: Where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10 packs for the price of 100 packs. In such a case taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of Section 8 of the said Act. Further, ITC shall also be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers. The situation mentioned at Para(C) of the above said Circular mentions situations whether value discounts are envisaged and therefore will not be applicable in the subject case where value discounts are not contemplated. The situation mentioned at Para(D) of the above said Circular mentions situations where discounts are not known at the time of supply or where discounts are offered after the supply is over. In the subject case the discounts are known well before the supply is effected 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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