Blog No. 50: Non-monetary incentive to distributors, extra quantity given on bulk purchases

In one of the cases, it has been ruled that GST is not applicable on supply of 30 additional units given on purchase of 100 units at a price of 100 units because 130 units are supplied at price of 100 units. Since 30 units are also supplied, input tax credit is admissible.

Read about the case [Golden Tobie Private Limited, AAR-Uttar Pradesh (2022)] below:

Facts of the Case:

1. The petitioner introduced a sales promotion scheme by way of which they will supply extra packs of cigarettes along with their regular supply quantity to their distributors without receiving any additional consideration.
2. Key features

2.1.        1 pack of cigarette is sold for ₹ 100/-. On purchase of 100 packs, 30 additional packs would be given for promoting sales.

2.2.        The Applicant would prepare the tax invoice showing total quantity of cigarettes as 130 packs and taxable value as ₹ 10,000/- and calculate thereon the GST and compensation cess.

2.3.        The packs of cigarettes containing additional 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. 

Submissions of the Applicant

3. Supply of original quantity along with the additional quantity would be supply.
4. Sub-section (3) of Section 15 categorically states that the value of the supply shall not include in discount which is given before or at the time of supply, if such discount has been duly recorded in the invoice issued in respect of such supply.
5. The taxable value shown in the invoice would be the transaction value which was attributable to the original quantity as well as the additional quantity.
6. Such supply of additional quantity cannot be included in the category of exempted supplies or supply of free samples.
7. CBIC has also clarified the same vide Circular No. 92/11/2019-GST dated 07.03.2019.

Decision

8. The applicant is not required to pay GST on additional quantity supplied.
9. The applicant is entitled to avail ITC in respect of additional quantity so supplied.

Paksh Remarks

10. This is a welcome ruling as it has direct concern with trade.
11. In present case, the transaction happened at the time of original supply. However, if similar transaction takes place in the form of post supply activity, then a care must be done to define these schemes at the time of original supply itself.