Question
Whether free samples can be exported under LUT.


Answer

Facts of the Case:
Whether free samples can be exported under LUT.

Law Applicable:
 SECTION 7 OF CGST ACT
(1) For the purposes of this Act, the expression 'supply' includes''

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

SECTION 17 OF CGST ACT

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

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(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and


Conclusion:
The question of LUT will come into force when the transaction is covered u/s 7 of CGST Act and to be treated as supply. Any transaction can be considered as supply only if there is some consideration subject to exceptions given in section 7.

If samples are exported free of cost there is no need to follow procedure of LUT because there is no consideration and there is no liability to pay tax. The only point to be considered is that the ITC is to be reversed as per section 17(5).

Suggestion:
If it is difficult to calculate the value of ITC because of number of inputs used to manufacture product then it is suggested to pay tax on the market value of samples.
The refund of above tax will not be granted because you cannot produce BRC.

(Reply dt.10/07/2019)