Appellate Authority Allows Input Tax Credit on Promotional Expenses under GST

The Appellate Authority concluded that Input Tax Credit (ITC) is available on GST paid for expenses related to both the promotional schemes of "Shubh Labh Loyalty Program" and promotional goods distributed as brand reminders. The previous decision disallowing ITC on these expenses was overturned, affirming the eligibility of ITC in this case.

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Issues Involved:
1. Availability of Input Tax Credit (ITC) on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program".
2. Availability of ITC on expenses incurred towards promotional goods given as brand reminders.

Issue-wise Detailed Analysis:

1. Availability of ITC on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program":

The Appellant, engaged in the sale of pharmaceutical goods, incurs marketing and distribution expenses to promote their products through various schemes like "Shubh Labh Trade Loyalty Program". This program rewards distributors/wholesalers based on the quantity of goods sold, offering items such as trips and watches. The Appellant claimed ITC on GST paid for these rewards.

The Appellate Authority examined whether these promotional goods/services qualify as "inputs" or "input services" under sections 2(59) and 2(60) of the CGST Act, 2017. It was determined that the promotional scheme is designed to increase sales and further the business. Therefore, the goods/services procured under this scheme are used in the course or furtherance of business, fulfilling the conditions of "inputs" and "input services".

The Authority also addressed whether these promotional goods/services could be considered exempt supplies under sections 2(47) and 2(78) of the CGST Act. It concluded that since these goods/services are inputs used to further the business, they are not output supplies and thus not exempt supplies.

Regarding the classification of these promotional goods/services as gifts under section 17(5)(h) of the CGST Act, the Authority noted that the transactions under the "Shubh Labh Trade Loyalty Program" involve an indirect consideration through increased sales, thus not qualifying as gifts. Consequently, ITC on these goods/services should not be disallowed.

2. Availability of ITC on expenses incurred towards promotional goods given as brand reminders:

The Appellant also distributes promotional items like pens, notepads, and key chains embossed with their brand to distributors and doctors. The Authority examined whether these items qualify as "inputs" under section 2(59) of the CGST Act. It was determined that these items serve as advertisement tools to promote the brand and further the business, thus qualifying as inputs.

The Authority also addressed whether these promotional items could be considered exempt supplies under sections 2(47) and 2(78) of the CGST Act. Similar to the previous issue, it concluded that since these items are inputs used to further the business, they are not output supplies and thus not exempt supplies.

Regarding the classification of these promotional items as gifts under section 17(5)(h) of the CGST Act, the Authority noted that these items are provided with a commercial motive to promote the brand and increase sales. Therefore, they do not qualify as gifts, and ITC on these items should not be disallowed.

Conclusion:

The Appellate Authority concluded that ITC is available on the GST paid on expenses incurred towards both the promotional schemes of "Shubh Labh Loyalty Program" and the promotional goods given as brand reminders. The previous ruling, which disallowed ITC on these expenses, was set aside.

Order:

1. ITC is available on the GST paid on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program".
2. ITC is available on the GST paid on expenses incurred towards promotional goods given as brand reminders.

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