Government and the indirect tax department has been taken to the Gujarat high court by certain group of pharmaceutical companies . The matter is of the denial of input tax credit on gifts and samples given to customers and clients. Under the Goods and Services Tax (GST) , companies can set off input tax credit on input goods and input services against output tax liabilities. However, it doesn’t provide this benefit on goods distributed as gifts or given at free of cost.
The high court issued notices to the government and respected tax department over this issue .
The lawyer arguing for the companies said ,”The restriction of input tax credit on goods written off or disposed of by way of gift or free samples is against the main objective of GST that there should not be any tax cascading and hence such a restriction will have to cross the bridge of constitutional validity “.
Consumer product companies are also not able to avail input tax credit on customised gifts such as calendars and chocolates etc. they give to their customers. As per Section 17(5)(h) of the CGST (Amendment) Act 2018 ,”Input tax credit cannot be availed on goods that are lost, stolen, destroyed or distributed as gifts or for free”.
So, companies offering “Buy 1,Get 1 free” schemes or extra 20% for the same price were asked to pay GST on the extra quantities. The tax authorities wanted companies to either pay GST or reverse input tax credits on the extra quantities.