Clarification on the Eligibility of ITC in relation to Sales Promotion Schemes

The government, vide Circular No. 92/11/2019-GST dated 7 March 2019, has provided clarifications in relation to the eligibility of Input Tax Credit (ITC) in case of various sales promotion schemes operated by businesses. They are as follows: 

Type of Scheme Applicability of GST Document to be issued Availability of ITC to Supplier Availability of ITC to the Recipient
Free samples or gifts for the unrelated parties Not liable to GST NA Not available under Section 17(5) NA
Free samples or gifts worth above INR 50000 for the related parties or distinct persons or employees Liable to GST under Schedule 1 GST Tax Invoice Available to the supplier (subject to fulfillment of other conditions) Available to the recipient (subject to fulfilment of other conditions)
Buy one – get one free offer Will not be treated as free supply

Value of free supply construed to be included in the supply for which consideration is received, and consequently entire supply is liable to GST

Rate of tax will be dependent on whether such supply is treated as mixed/composite supply		 Tax invoice Available to the supplier (subject to fulfillment of other conditions) Available to the recipient (subject to fulfilment of other conditions)
Credit note for volume and staggered discounts over a period of time/at end of the year If pre-agreed and documented as per Section 15(3),GST credit note can be issued to adjust the value of supply GST credit note under Section 34 Output GST liability can be adjusted for such a credit note

ITC of inputs/input services and capital goods shall be allowed, subject to fulfillment of other conditions		 The recipient is required to reverse ITC.

In case if the recipient does not reverse ITC, the supplier will not be allowed to adjust output liability
Secondary discounts – these discounts are not known at the time of supply Since such discounts do not fulfill the condition under 15(3),commercial/financial credit note could be issued Commercial/financial credit note is to be issued under GST in case if the conditions under Section 15(3) are not fulfilled Output GST liability cannot be adjusted for such credit note

ITC of inputs/input services and capital goods shall be allowed, subject to fulfillment of other conditions		 Available to the recipient (subject to fulfilment of other conditions)

TCS under Income-tax law not to be included in 'value of supply'

Earlier, the government, vide Circular No. 76/50/2018-GST dated 31 December 2018, had clarified that the 'value of supply' under GST shall include the Tax Collected at Source (TCS) amount collected under the provisions of the Income tax Act, 1961.

Now, in view of the representations received from the industry, the government has re-visited its position and clarified vide a Corrigendum to the said that the TCS being an interim levy not having the character of tax, should not be included in the 'value of supply' under GST.

New composition scheme for certain businesses

The government, vide Notification No. 2/2019-Central tax (Rate) dated 7 March 2019, has introduced a scheme for the specified registered persons supplying goods or services or both, whereby, they will be liable to pay GST on intra-state supplies at the rate of 6% on the first supplies of goods or services or both up to an aggregate turnover of INR 5 million made on or after 1st April in any financial year. The notification shall come into force from 1 April 2019.

The benefit under this scheme can be availed by a registered person, subject to certain conditions, which inter alia include:

  • Whose aggregate turnover in the preceding financial year was INR 5 million or below;
  • Who is ineligible to pay tax under Sec. 10(1), i.e., composition levy;
  • Who is not engaged in making inter-state supplies;
  • Who is not engaged in making any supply through e-commerce operator;
  • Who is not engaged in making supplies of:

    • Ice cream and other edible ice;
    • Pan masala;
    • Tobacco.
  • Who should not collect any tax from the recipient nor shall be entitled to any ITC.

Increase in the Turnover Threshold Limit for Compulsory Registration

The government, vide Notification No. 10/2019-Central tax dated 7 March 2019, has increased the aggregate turnover threshold limit for obtaining registration under GST to INR 4 million from the erstwhile limit of INR 2 million. The notification shall come into effect from 1 April 2019.

Due dates for GSTR-1 and GSTR-3B notified

The due dates for GSTR-1 and GSTR3B for the period of April 2019 to June 2019 have been notified by the government.

Return Due date Notification reference
GSTR-1 (quarterly) - Registered persons having aggregate annual turnover of up to INR 1.5 million 31 July 2019 Notification No. 11/2019 - Central Tax dated 7 March 2019
GSTR-1 (monthly) - Registered persons having aggregate annual turnover of more than INR 1.5 million 11th of the succeeding month (extended from the erstwhile due date of 10th of the succeeding month) Notification No. 12/2019 - Central Tax dated 7 March 2019
GSTR-3B (monthly) - All registered persons 20th of the succeeding month Notification No. 13/2019 - Central Tax dated 7 March 2019

SKP's Comments

Reversal of the ITC, on account of free samples, discounts, gifts, etc., has been subject to varied interpretations based on the facts and commercial practices of the industry in which a business operate. The clarifications issued by the government should help businesses in understanding the position of the revenue and ensuring that their practices are in compliance with the requirements of the law. 

The new composition scheme, introduced vide Notification No. 2/2019-Central tax (Rate), should benefit the small-scale suppliers of services, or suppliers involved in the supply of both goods and services, as such businesses are ineligible to avail composition levy under Section 10(1) of the CGST Act, 2017.

The government has released draft formats of a new return filing mechanism, which is expected to be made compulsory from July 2019. The new return filing mechanism also provides for amendments to the original returns filed. We shall bring you the key features of these return formats in our next GST alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.