EXAMPLE-124

Samar Ltd presented free samples of product manufactured by them to unrelated customers. The company acquired the input for a cost of Rs 3,000 inclusive of GST from a GST registered vendor for use in the manufacturing of free samples.  Samar Ltd takes credit on GST paid on input . The open market value at the date of supply of free samples is Rs 5,000.

1.                  How will this transaction be dealt in GST.

2.                Any difference in treatment when tax paid on inputs used for manufacturing  of free sample is not claimed as credit .

Answer

1.      Samar Ltd would be required to account for GST on the supply based on the open market value  as deemed value of the free samples supply on the basis of followings provisions in GST.

Schedule I, paragraph 1 specifies that if permanent transfer or disposal of business assets where input tax credit has been availed on such assets then such activities to be treated as supply even if made without consideration.

2.      In view of the above provision where ITC has not been availed on input and permanent transfer and disposal takes place without consideration then such transfer is not deemed as supply. Accordingly, free samples distribution not deemed as supply.