Input Tax Credit not available for gold coins in sales promotion schemes classified as gifts

The Authority for Advance Ruling (AAR) determined that the applicant cannot claim Input Tax Credit (ITC) on the procurement of gold coins distributed under a sales promotion scheme. The AAR classified the gold coins as gifts, rendering ITC unavailable under Section 17(5)(h) of the CGST Act. Consequently, ITC cannot be claimed on any similar schemes periodically notified by the applicant.

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Issues Involved:
1. Whether Input Tax Credit (ITC) can be claimed on procurement of gold coins distributed to customers under a sales promotion scheme.
2. Whether ITC can be claimed on similar schemes periodically notified by the applicant.

Issue-Wise Detailed Analysis:

1. Whether Input Tax Credit (ITC) can be claimed on procurement of gold coins distributed to customers under a sales promotion scheme:

The applicant, engaged in the business of developing, manufacturing, and distributing crop protection chemicals and hybrid seeds, launched a sales promotion scheme called the "Kharif Gold Scheme 2018." Under this scheme, customers who purchase certain quantities of products or make specific payments are entitled to gold coins. The applicant sought to determine if ITC could be claimed on the procurement of these gold coins.

The applicant argued that the gold coins qualify as inputs under Section 16(1) of the CGST Act, as they are used in the course or furtherance of business. They contended that the conditions laid down in Section 16(2) were satisfied and that the gold coins were not gifts but incentives tied to contractual obligations.

The jurisdictional officer countered that gold coins are not inputs as they do not align with the basic business model, are not essential for continuity in supply, and are not directly concerned with making taxable supplies. They also argued that the gold coins could be considered gifts, which would block ITC under Section 17(5)(h) of the CGST Act.

The Authority for Advance Ruling (AAR) examined whether the gold coins could be classified as gifts. They noted that the applicant did not provide any contractual agreement with customers, only a brochure of the scheme. The AAR concluded that the gold coins were given voluntarily and thus qualified as gifts. Under Section 17(5)(h), ITC is not available for goods disposed of by way of gifts, even if used in the course or furtherance of business. Therefore, the applicant cannot claim ITC on the procurement of gold coins.

2. Whether ITC can be claimed on similar schemes periodically notified by the applicant:

The applicant also sought a ruling on whether ITC could be claimed on similar schemes periodically notified. Given the conclusion on the first issue, the AAR answered this in the negative. Since the gold coins distributed under the "Kharif Gold Scheme 2018" were considered gifts, ITC was blocked under Section 17(5)(h). Consequently, ITC cannot be claimed on any similar schemes periodically notified by the applicant.

Conclusion:

The AAR ruled that the applicant cannot claim ITC on the procurement of gold coins distributed under the sales promotion scheme. This ruling applies to all similar schemes periodically notified by the applicant. The key reasons include the classification of gold coins as gifts and the blocking of ITC under Section 17(5)(h) of the CGST Act.

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