2019 (3) TMI 540 - AAR - GST

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 ... Input Tax Credit - in course or furtherance of business - Blocked credits under Section 17(5)(h) - Gift (voluntary transfer without consideration) - Supply versus gift - commercial consideration/hidden discount - Schedule I - supplies made without consideration treated as supplyInput Tax Credit - in course or furtherance of business - Blocked credits under Section 17(5)(h) - Gift (voluntary transfer without consideration) - Allowability of input tax credit on GST paid for procurement of gold coins to be distributed to customers under the Kharif Gold Scheme 2018 - HELD THAT: - The Authority examined whether the gold coins constituted inputs used in the course or furtherance of the applicant's business and whether any statutory blocking provision applied. While Section 16 permits ITC where goods are used in the course or furtherance of business, Section 17(5)(h) begins with a non obstante clause disallowing ITC on goods disposed of by way of gift or free samples. The applicant asserted a contractual obligation and commercial consideration embedded in the scheme; however no contracts or evidence of payment of output tax on disposal were produced. The Authority treated the assurance that coins would be given on fulfillment of scheme conditions as voluntary disposals in the enlarged commercial sense of 'gifts' (assured gifts/promotional enticements) and observed that where goods procured with input tax are disposed of without payment of output tax, Section 17(5)(h) precludes claiming ITC. The alternative characterisation as a discount/contractual obligation would require demonstrable obligation and appropriate valuation/output tax treatment, which was not established by the applicant. Accordingly the blocking provision applies.Input Tax Credit on GST paid for procurement of the gold coins is not allowable.Supply versus gift - commercial consideration/hidden discount - Schedule I - supplies made without consideration treated as supply - Blocked credits under Section 17(5)(h) - Whether the conclusion on ITC in respect of the Kharif Gold Scheme 2018 applies to similar sales promotion schemes notified by the applicant - HELD THAT: - The Authority answered this question by applying the same legal principle: where promotional items are procured with input tax and are disposed of as gifts or free samples (i.e., without payment of output tax or without demonstrable contractual obligation creating taxable consideration), Section 17(5)(h) bars ITC. The Authority therefore held that the negative answer on ITC for the subject scheme extends to analogous schemes unless facts establish that the disposal is a taxable supply (with proper valuation and output tax compliance) or otherwise falls outside the scope of Section 17(5)(h).The disallowance of ITC applies to similar schemes unless the taxpayer proves the disposals are taxable supplies or otherwise not gifts.Final Conclusion: The Authority ruled that the applicant cannot claim input tax credit on GST paid for purchase of gold coins distributed under the Kharif Gold Scheme 2018, and the negative conclusion applies to similar promotional schemes unless the disposals are shown to be taxable supplies or not constitute gifts under Section 17(5)(h). 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.