Free prizes not taken as sale

Mar 14 2014, 02:46 IST
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SummaryQueries on taxation and service tax liabilities, addressed by Vivek Sharma and Manav Saneja of EY

OUR company deals in car accessories and we have recently launched a new product in the market. As part of the marketing strategy, we will be distributing free prizes to first few buyers of our products under a lucky dip competition. Please clarify whether we need to pay VAT on distribution of such free prizes?

Value added tax (VAT) is levied on sale of goods. The term ‘sale’ has been defined under the Central Sales Tax Act, 1956 and other state VAT legislation as transfer of property by one person to another for a valuable consideration. One essential condition for a transaction to qualify as sale is that it should be for a valuable consideration.

We understand that you would be distributing the prizes free of cost i.e. no consideration/price has been charged or received with respect to the distribution of the goods. Further, the distribution of the prizes is not integrally connected with the sale of the products originally sold by you (since the sale of the original product only entitles the purchaser to a lucky draw coupon). Since there is no sales consideration, the distribution of prizes should not qualify as ‘sale’. So, VAT should not be applicable.

Packing of rice exempt from service tax

WE are a packaging company located in Kerala and are engaged in providing packaging services to paddy cultivators located across the state. We have installed various automated machines with the latest PLC controller devices for packing rice. We charge service tax to our customers for providing this services, however, our customers have told us that some recent amendment has been made under service tax law and we need not charge any service tax on our invoices. Please clarify.

Notification 25/2012-ST dated 20 June, 2012 [entry sl.no.40] provided that only loading, unloading, packing, storage and warehousing of agricultural produce was exempt from payment of service tax.

Agricultural produce means any produce of agriculture on which either no processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for the primary market. Recently, the government vide Notification No. 04/2014 - Service Tax dated 17 February 2014 has also exempted services by way of loading, unloading, packing, storage or warehousing of rice.

Given the above, it appears that services provided by you in relation to packing of rice would now be exempt from service tax.

Cenvat

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