A client gives out 1) free samples of its products and 2) pens, bottles, etc. with their brand name on it, as promotional material. Both are without charging anything to its dealers/distributors. Currently, they reverse the ITC on these products and recognise it as a cost, because they are being sold for free. In future, they would like to sell these for a nominal price of Rs 1/ Rs 2 and use the full ITC instead of reversing. Is there any issue with this?
This may be regarded as colourable device. Further as per Explanation (c) to Sec 15 of the CGST Act,2017 a sole agent or sole distributor or sole concessionaire is deemed to be related person and thus the transaction value will be disregarded as valuation be made as per Rule 27 to 32 of the CGST Rules,2017.
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