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IDMA urges GST Council to exempt freebies from GST
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Laxmi Yadav, Mumbai
October 26 , 2018
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The Indian Drug Manufacturers' Association (IDMA) has urged the GST Council to accept Law Review Committee's report recommending that freebies offered by companies should be kept out of the purview of goods and services tax (GST) and the firms should be allowed to avail input tax credit on them.
It will go a long way in improving ease of doing business for pharma companies as input taxes on free samples and additional quantities for the same price would be available to be set off against the final tax, said the industry body.
Freebies - buy one get one, free samples and additional quantities for the same price - have been offered by pharmaceutical companies for several years for furtherance of business. These freebies became liable to tax when GST was rolled out. The companies are required to pay GST on the extra quantities. Hence several drug companies had stopped these freebies. But there are. a number of firms which continued to offer such discounts to trade channels. They had fallen under the scrutiny of Director General of GST (Intelligence). Biggies like Cipla, Sun Pharma, Novartis are among the companies which have been served notices by Director General of GST (Intelligence) in this regard. They were asked to submit details on the freebies doled out to distributors, retailers, etc. It is learnt that tax authorities want these companies to either pay GST or reverse input tax credits on the additional quantities as they believe that extra quantity offered by the companies has nothing to do with expansion of business and tax credit needs to be taken back.
The Law Review Committee in a report to the GST Council has reportedly stated that tax should be levied on taxable value of supply of total goods which include freebies and hence input tax credit should not be denied in case of freebies. Basically, the goods purchased by consumers are considered for the levy of GST, even though one product may have come free with another. By that logic, the input taxes on both products would be available to be set off against the final tax, the committee said.
The panel suggested that an annual value cap on freebies may be fixed at 0.5 per cent of turnover of a company.
IDMA had earlier this month called on finance secretary Dr Hasmukh Adhia seeking his intervention to ensure that the GST Council accepts the proposals of the Law Review Committee without any cap.
There is no need to fix cap at 0.5 per cent of turnover as providing free samples is an integral part of any pharma business marketing practice. Such incentives are provided for furtherance of business and the annual value is very low, it added.
It is learnt that freebies offered by pharmaceutical companies to distributors, stockists, retailers for the same price are no longer a cost for them.
A member of executive committee, IDMA said that there should not be any limitation of input credit on goods distributed free of cost for business purposes. The cost of all such goods are already considered in the sale price of products on which GST is paid.
Contrary to the promise of seamless credit, there have been potentially multiple credit blockages qua transactions peculiar to the industry involving promotional supplies, distribution of physician's samples, brand reminders, disposal/destruction of expired stock, control samples and testing samples etc, he said.
It may also be noted that GST was expected to render taxes as neutral and unbiased. However, the said objective remains unfulfilled when there is reversal/obstruction of input tax credit for such above referred transactions which are undertaken in the normal course of business, he added.
IDMA had recommended in its pre-budget 2018-19 proposals submitted to the government that the need of the hour is to amend the exclusion clause of input tax credit and allow credit on free samples and goods destroyed due to expiry so that credit can be availed on the input taxes to ensure that no reversal of input tax credit is needed to be made towards the value of free samples distributed.
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