Extra pack of cigarettes provided along with regular supply will not attract GST, ruled an Appellate Authority for Advance Ruling (AAAR). According to experts, the ruling will force businesses rework their promotional schemes.
The appellate authority further said that ‘Buy One, Get One Free’ clause in GST circular (92/11/2019) does not talk or bar any particular commodity, rather it elaborates the scheme.
Disposing an appeal filed by the Goods and Services Tax (GST) Department, AAAR also made it clear that advance ruling can be sought on any commodity.
Quoting the GST circular, the ruling said, “In fact, it (Buy One, Get One Free) is not 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 best be treated as supplying two goods from the price of one,” AAAR said while rejecting the appeal.
The appeal was filed against an order of AAR (Authority for Advance Ruling) in the matter of Agra-based cigarette manufacturer Golden Tobie Private Limited.
The company, under the new sales promotion scheme, has planned to supply an additional 30 packs of cigarettes on purchase of 100 packs of cigarettes to the distributor.
This means the buyer will get 130 packs at the price of 100 packs.
Since Legal Metrology Rules require MRP (Maximum Retail Price) to be printed on each of the pack. This means additional packet, though supplied free, will also have price label printed on that. The distributor can either pass on the benefit or supply the extra pack free of cost.
The company sought ruling from AAR on three issues.
First, will the extra pack again be leviable to GST? Second, in case tax is applicable, then what will be the value? And third, whether extra pack would be considered as exempt supply or free sample?
After going through all the facts and arguments, AAR ruled that there will not be any GST on extra pack. Aggrieved by the ruling, tax department moved to AAAR.
After going through all the facts and arguments, AAAR upheld the ruling by AAR by saying “it is proper and needs no interference.”
Commenting on the development, Prateek Bansal, Associate Partner (Tax & Customs) at Law Firm White and Brief, said the Punjab GST AAAR has recently ruled that complimentary IPL tickets given to unrelated persons will be an ‘exempt supply’, and ITC will not be available to that extent.
Now, in context of ‘Buy One get One Free Offer’, the Uttar Pradesh GST AAAR has ruled that extra/additional packs of cigarettes given to unrelated persons (along with a purchase of certain packs) will be considered as ‘free supply’ and the ITC pertaining to those additional packs shall be available.
Evidently, these rulings reaffirm the position that an individual/standalone supply without consideration would be considered as ‘exempt supply’ thereby requiring ITC reversal.
However, when the very same supply is clubbed with another supply for which consideration is charged, the price of the said freebie would be considered as part of the taxable supply, and hence, no ITC reversal is warranted.
“Given this, it is imperative for the businesses to structure the promotional schemes appropriately (such as clubbing two supplies, or offering discounts, etc.) so as to avoid leakage of ITC,” he said.