GST impact on pharma and FMCG firms: Is taxing freebies legally tenable?

Freebies/extras cannot qualify as 'gifts' because the consideration for them is in-built in the price, Sudipta Bhattacharjee says.

Investigations against freebies/extras being provided by various pharma and FMCG companies have been in news, of late. Recently, even banks faced investigation/notices against alleged ‘free of cost’ services. There was an immense criticism of this move and finally, a favourable clarification was issued by the government for banks. However, ‘free’ supplies it seems will continue to remain a ‘red flag’ for tax authorities. After banks, it appears that the pharma and FMCG companies are now on the radar.

Two broad types of schemes can be discussed in this context:

(i) Buy-one-get-one-free schemes; and

(ii) 20 per cent extra: This is generally the increase