Example

Akash & sons distributes 1000 unit of “A” as free samples to unrelated customer to know the response of customer towards the product. How this transaction is dealt under GST?
If
1. Akash & sons does not availed ITC on the input related to 1000 unit distributed as free sample.
2. If they availed the ITC in relation to the product distributed as free samples.

Answer

Supply of goods or services is the 'taxable event' under GST. The concept of supply is the essence of GST Law. Supply covered under section 7 of the CGST Act i.e. Supplies Made for Consideration for business or furtherance of business and supplies specified in Schedule I of CGST act.
Schedule-I provided that activities to be treated as supply even if made without consideration:
(i) Permanent transfer or disposal of business assets where ITC has been availed on such asset.

(ii) Covers supplies of Goods or Services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business without consideration.

1. In view of the above provision in Ist case free Samples to unrelated persons as ITC has not been availed are not covered under definition of supply and not covered in schedule point 1. Thus no taxability in Ist case on distribution of free sample.
2. In view of the above provision distribution of free samples is taxable according to point (i) of schedule I and valuation will be done according to Rule 27 of CGST act on Open Market Value or value of like kind and quality or 110% of cost.

Alternatively if ITC taken is reversed on the basis of Section 17(5)(h) of the CGST ACT which Provides that No input tax credit is available if goods lost, stolen, destroyed , written off or disposed of by way of gift or free. Then it will not cover under definition of supply and not covered in schedule point 1.