2019 (3) TMI 540 - AAR - GST

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

In Re: Biostadt India Limited

The Authority for Advance Ruling (AAR) determined that the applicant cannot claim Input Tax Credit (ITC) on the procurement of gold coins distributed ... Input tax credit - procurement of Gold coins which are to be distributed to the customers at the end of scheme period for achieving the stipulated lifting or payment criteria - various other schemes involved periodically - gift or not - Held that:- The provisions of ITC are governed by Sections 16 and 17 of the CGST Act, 2017. In order to avail ITC, two basic provisions need to be complied with, i.e. Section 16 and Section 17. As per Section 16, a taxpayer is entitled to take credit of input tax charged on any supply of goods or services to him which are used in the course or furtherance of his business, i.e this section disallows ITC against input goods/services used for non-business purposes. Section 17 (5) of the CGST Act deals with Blocked credits and begins with a non obstante clause, which means even if Section 16 (1) allows ITC, Section 17(5) shall block in respect of certain cases. The word ‘gift’ has not been defined in the CGST Act and the Gift-Tax Act (18 of 1858) had defined the word gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money’s worth. It is seen from the definition that the transfer i.e the gift given in such a case has to be voluntary - A contractual arrangement implies especially in view of the magnitude and area of the applicant’s business that, it should also be agreed by the customer in writing to such scheme floated by the applicant. We find that they have not submitted any such contract/agreement and in support of their contention, as Exhibit ‘A’ they have only submitted a brochure/writeup/invitation with the heading Kharif Gold Scheme 2018. Hence we find that the gold coins are not given to their customers under any contractual obligation and are voluntarily given on certain conditions achieved by their customers. In the instant case it is seen that the applicant has assigned a value to the gold coins to be given gifts and the value is ₹ 3,200/- per gm. They have not explained as to how they have arrived at the value because value of gold changes everyday. Secondly the Scheme announced by them states that “customers who lifted the products as per the scheme and made payments as per the scheme are invited for the meeting. ITC on “gifts” will not be available when no GST is being paid on their disposal. Just because the applicant submits that they have satisfied Section 16 (1) of the CGST Act 2017 does not mean that they are entitled to credit since Section 17(5) starts with “Notwithstanding anything contained in sub-section (1) of Section 16” The implication is that in the subject case even if it seems, as per the applicant, that Section 16 (1) is applicable in their case and allows them credit, Section 17(5) shall block such credits. 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.