Economy

Goods at nominal price under promotional scheme for a product an individual supply, says West Bengal AAR

Shishir Sinha New Delhi | Updated on October 11, 2021

As the supply of the two items shall be made for different prices, it doesn’t satisfy the condition of being ‘made for a single price’ and the supplies, therefore, cannot be regarded as mixed supply, rules AAR

Goods offered by a company at a very nominal price under promotional scheme for a product to a distributor/retailer will be considered individual supply, West Bengal Authority for Advance Ruling (WB AAR) has said.

The applicant Kolkata-based Kanahiya Realty Private Limited intends to manufacture and supply hosiery goods such as vests and briefs. It also has a plan to bring a promotion scheme, under which unconnected goods for sale at a discounted price to such retailers who have bought a certain unit of hosiery product. Under this scheme, gold coins, refrigerators, coolers, split air conditioner, etc. would be offered at reduced/ discounted prices For example, the retailer would be eligible to buy a split air conditioner for ₹ 50 only against purchase of 1,300 boxes of hosiery goods. This is voluntary scheme which mean retailers can purchase hosiery without going for the scheme.

Two issues

The applicant sought advance ruling on two issues. First, will unconnected goods be considered as individual supply and GST to be levied at applicable rate for the said good or entire supply will be considered as mixed one? Second, whether input tax credit for goods sold at nominal rate be available for the applicant?

The applicant submitted that hosiery items and goods under promotional scheme will be sold with separate invoices and accordingly GST be recovered from the retailer. The applicant apprehended that tax authorities might consider entire supply as mixed supply and taxed accordingly.

Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price. Here GST will be applicable at the rate which is highest among all goods and services. For example, supply of hosiery goods and the split air conditioner would qualify as supply of split air conditioner which attracts a tax rate of 28 per cent.

At the same time, composite supply means supply of two or more goods or services or both. These are naturally bundled and supplied in conjunction with each other in the ordinary course of business and one of which is called principal supply. Rate for principal supply will be rate for entire supply. It means if supply of hosiery goods and the split air conditioner is a composite supply as hosiery is the principal item, then GST rate on that would be applicable on entire supply.

Hosiery goods

The AAR noted that under the promotional scheme, the hosiery goods would be sold first on a separate invoice and once the retailer would meet the eligibility criteria, the goods specified in the scheme would be supplied to the said retailer vide a separate invoice. So, “the supply of hosiery goods followed by the supply of goods under promotional scheme shall not take place for a single price. As the supply of the two items shall be made for different prices, it doesn’t satisfy the condition of being ‘made for a single price’ and the supplies, therefore, cannot be regarded as mixed supply,” AAR said while also ruling that it is neither composite supply.

It also acknowledged that applicability of promotional scheme depends upon meeting of specific target by the retailer. Accordingly, such a supply “would qualify as individual supplies taxable at the rates applicable to each of such goods.” Further, it said that credit of the input tax paid on the items being sold at nominal prices would be available to the applicant.

Published on October 11, 2021

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