2022 (2) TMI 825 - AAR - GST

Levy of GST - promotional scheme of extra packs of cigarettes - taxable value which can be attributed to such extra packs of cigarettes for levy of GST - extra packs of cigarettes would be exempt supplies or free samples - applicability of provisions of Section 17(2) of the UPGST Act, 2017 read with Rule 42 of the UPGST Rules, 2017, or clause (h) of Section 17(5) of the UPGST Act, 2017 - HELD THAT - The promotional scheme of additional 30 packs of cigarettes on every purchase of 100 packs of cigarettes for the payment of 100 packs of cigarettes is a taxable supply of 130 packs of cigarettes on the price of 100 packs of cigarettes. There would no tax liability on additional 30 packs of cigarettes supplied with 100 packs of cigarettes. Further, ITC shall also be available to the supplier for the inputs, input services and capital goods used in relation to Supply of goods or services or both as part of such offers. The provisions relating to 'supply' with respect to related persons and / or distinct persons are specifically covered within schedule I of the CGST Act, 2017 i.e. Activities to be treated as supply even if made without consideration. As per the said provisions, any supply of goods or services or both when made in the course or furtherance of business between the related persons or between the distinct persons, the same would be treated as supply even when the supply is made without consideration. As such, any transaction between the related persons or between the distinct persons, irrespective of the consideration, would be treated as 'supply' and hence taxable under GST. The cigarettes would not be supplied through sole distributor (i.e. related person) and in case of any divergence from the said disclosure (i.e. in case of supply to related person or distinct person), the ruling will be void ab-initio as per Section 104 of the CGST Act, 2017.

Summary

Issues Involved:
1. Whether the extra packs of cigarettes would be leviable to GST.
2. The taxable value attributable to the extra packs of cigarettes for levy of GST.
3. Whether extra packs of cigarettes would be considered as exempt supplies or free samples, attracting the provisions of Section 17(2) of the UPGST Act, 2017 read with Rule 42 of the UPGST Rules, 2017, or clause (h) of Section 17(5) of the UPGST Act, 2017.

Detailed Analysis:

Issue 1: GST Levy on Extra Packs of Cigarettes
The applicant, engaged in manufacturing and distributing cigarettes, plans to supply an additional 30 packs of cigarettes for every 100 packs purchased without receiving additional consideration. The applicant argued that the entire quantity, including the additional packs, would be reflected in the invoice with taxable value, thus not constituting a free supply. The ruling referred to Circular No. 92/11/2019-GST, which clarifies that in "buy one get one free" offers, it is not a case of free goods but two supplies for a single price. Therefore, the extra packs are not subject to additional GST. The ruling concluded that the extra packs of cigarettes would not be leviable to GST.

Issue 2: Taxable Value of Extra Packs of Cigarettes
Since the ruling concluded that the extra packs are not subject to additional GST, the question of determining the taxable value attributable to the extra packs does not arise. The ruling did not provide an answer to this question due to the negative response to the first issue.

Issue 3: Classification as Exempt Supplies or Free Samples
The applicant contended that the additional packs should not be considered free supplies or exempt supplies since they are included in the transaction value. The ruling referred to the same Circular, which states that in "buy one get one free" offers, it is a supply of two goods for the price of one, and ITC is available for inputs, input services, and capital goods used in such offers. The ruling concluded that the extra packs of cigarettes would not be considered exempt supplies or free samples and thus do not attract the provisions of Section 17(2) or clause (h) of Section 17(5) of the UPGST Act, 2017.

Conclusion:
The ruling determined that the extra packs of cigarettes supplied under the promotional scheme are not subject to additional GST, do not require a separate taxable value, and are not considered exempt supplies or free samples. Thus, the provisions of Section 17(2) and clause (h) of Section 17(5) of the UPGST Act, 2017, do not apply.