Summary:
The Kerala Authority for Advance Ruling (‘the AAR’) has held that goods issued for demo purposes are not to be treated at par with “Physicians’ Samples – Not for Sale” for the purposes of GST. Since demo goods remain the property of the supplier and are only scrapped after repeated use, they are treated as business assets. Consequently, no reversal of Input Tax Credit (‘ITC’) is required at the time of issuance and GST liability arises only when such goods are cleared as scrap.
Facts:
- The Applicant provides demo samples of its product to the product specialists (as a marketing strategy) for field demonstrations to prospective customers at hospitals, clinics, and conferences
- The goods are not sold to end-users and remain the property of the Applicant. After repeated use, they become unfit and are returned as scrap, on which applicable GST is discharged at the time of clearance as scrap
Issues before the AAR:
- Whether demonstration goods issued to product specialists are to be treated at par with “Physicians’ Samples – Not for Sale.” for the purpose of GST?
- Whether any reversal of ITC is required on such demonstration goods?
Discussion and Ruling:
- A fundamental distinction between demo goods and physicians’ samples lies in the transfer of title. In the case of physician samples, ownership of the goods is permanently transferred free of cost to medical practitioners, which constitutes disposal and attracts requirement of ITC reversal under Section 17(5)(h) of the CGST Act (as goods are given as free samples)
- Demo goods, by contrast, are not transferred or disposed of. Ownership remains with the Applicant and the goods are merely used by product Specialists as representatives of the company
- Issuance of demo goods does not amount to “supply” under Section 7 of the CGST Act, as there is no sale, transfer, barter, exchange, licence, rental, lease, or disposal at that stage
- Demo goods are used in the course or furtherance of business and thus there is no restriction on ITC. The only stage at which GST arises is upon clearance of such goods as scrap, and applicable tax is discharged on the scrap value
- Basis the above discussions, the AAR held that the Applicant’s product issued for demonstration are not to be treated at par with “Physicians’ Samples – Not for Sale” for the purpose of GST and no reversal of ITC is required on such goods