Conflicting views on Input Tax Credit for promotional schemes & brand reminders

The appellate authority had differing views on the availability of Input Tax Credit (ITC) on promotional schemes and brand reminders. The Member (SGST) upheld the Authority for Advance Ruling's decision, denying ITC on both promotional schemes and brand reminders. In contrast, the Member (CGST) overturned the ruling in favor of the appellant, allowing ITC. Due to the conflicting decisions, no advance ruling could be issued as per Section 101(3) of the CGST Act.

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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. ITC on Promotional Schemes of "Shubh Labh Loyalty Program":

The appellant, engaged in the sale of pharmaceutical goods, offers promotional schemes like the "Shubh Labh Loyalty Program" to wholesalers. Under this program, wholesalers earn reward points based on their purchases, which can be redeemed for items like watches or trips. The appellant claimed ITC on GST paid for these promotional items.

The Authority for Advance Ruling (AAR) held that these promotional items are gifts and thus, ITC is not available as per Section 17(5)(h) of the CGST Act, which disallows ITC on goods disposed of by way of gift or free samples. The appellant argued that these items are not gifts but are given under a contractual obligation to promote sales, thus should be eligible for ITC under Section 16(1), which allows ITC on goods used in the course or furtherance of business.

However, the appellate authority noted that there is an inherent contradiction in the appellant's argument. On one hand, the appellant claims that the items are not gifts due to contractual obligations, and on the other hand, they argue that there is no barter or supply of services by the recipient. The appellate authority concluded that since no monetary consideration is received for these items, they are indeed gifts, and ITC is not available as per Section 17(5)(h).

2. ITC on Promotional Goods Given as Brand Reminders:

The appellant also distributes promotional items like pens, notepads, and keychains embossed with their brand to distributors and doctors as brand reminders. The appellant claimed ITC on GST paid for these items, arguing that they are used to promote their brand and hence should be eligible for ITC under Section 16(1).

The AAR ruled that these items are also gifts and thus not eligible for ITC under Section 17(5)(h). The appellant contended that these items are given under a contractual obligation and are not gifts. However, the appellate authority found that since these items are distributed free of cost without any contractual obligation or consideration, they are indeed gifts. Therefore, ITC is not available as per Section 17(5)(h).

Judgment:

The appellate authority had differing views. The Member (SGST) upheld the AAR's order, denying ITC on both promotional schemes and brand reminders. The Member (CGST) set aside the AAR's order in favor of the appellant, allowing ITC. As per Section 101(3) of the CGST Act, due to the differing views, it is deemed that no advance ruling can be issued in respect of the questions under appeal.

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