2019 (4) TMI 111 - AAR - GST

GST liability for free goods to KSEB clarified with input tax credit rules

The Authority for Advance Rulings, Kerala, determined the GST liability for free goods supplied to Kerala State Electricity Board for flood relief and ... Input tax credit - valuation under Rule 27 of the CGST Rules - supply not wholly for consideration in money - open market value for valuation - reimbursement to distributor and tax invoice showing discount - Section 17(5)(h) of the CGST Act - input tax credit not available for goods disposed by way of gift or free samplesInput tax credit - valuation under Rule 27 of the CGST Rules - supply not wholly for consideration in money - reimbursement to distributor and tax invoice showing discount - GST liability and admissibility of input tax credit for goods supplied free of cost by distributors to Kerala State Electricity Board on the applicant's instruction. - HELD THAT: - The supply to Kerala State Electricity Board was effected on the distributors' invoices showing taxable value and 100% discount, and the distributors remitted the GST. Where consideration is not wholly in money, valuation is governed by Rule 27 of the CGST Rules which requires use of open market value or equivalent consideration. The distributors, having issued tax invoices, paid the output tax and were later reimbursed by the applicant for the value of goods. Given this structure - supply on instruction of the applicant, invoicing and payment of GST by the distributors, and subsequent reimbursement by the applicant - the distributors are entitled to claim input tax credit on those supplies. The valuation principles of Rule 27 apply to determine taxable value when consideration is not wholly in money.Distributors are entitled to input tax credit for goods supplied to KSEB on instruction of the applicant; Rule 27 applies for valuation and the arrangement of invoicing, GST payment and reimbursement supports entitlement to ITC.Input tax credit - Section 17(5)(h) of the CGST Act - input tax credit not available for goods disposed by way of gift or free samples - Whether input tax credit is admissible for goods distributed free under the applicant's CSR activities to flood-affected persons. - HELD THAT: - Section 17(5)(h) excludes input tax credit in respect of goods disposed of by way of gift or free samples, and the applicant distributed electrical items free to flood-affected persons as part of CSR without collecting any consideration. Those transactions constitute disposal by way of gift/free distribution and therefore fall within the statutory exclusion. Consequently input tax credit cannot be availed on such CSR distributions.Input tax credit is not available for goods distributed free of charge under CSR activities to flood-affected persons, by virtue of Section 17(5)(h).Final Conclusion: Ruling: (i) For supplies to KSEB effected by distributors on the applicant's instruction, valuation is governed by Rule 27 and distributors who invoiced, paid GST and were reimbursed are entitled to input tax credit; (ii) input tax credit is not available for goods distributed free under the applicant's CSR activities to flood-affected persons pursuant to Section 17(5)(h). Issues:1. Determination of GST liability for goods provided free of cost to Kerala State Electricity Board for flood relief.2. Admissibility of input tax credit for goods provided free of cost in CSR activities.3. Applicability of Section 17(5) of CGST Act, 2018 on CSR expenses.Analysis:1. Determination of GST liability for free goods to KSEB:The applicant, a dealer in electrical goods, supplied materials free of cost through distributors to Kerala State Electricity Board for flood relief. The distributors invoiced KSEB with sale value, GST, and total amount with a 100% discount, paying the GST liability to the government. As per Rule 27 of GST Rules, the value of supply for goods not wholly in money is determined by the open market value or consideration in money. The distributor, upon instruction from the applicant, provided goods to KSEB, and upon reimbursement from the applicant, would be eligible for input tax credit.2. Admissibility of input tax credit for CSR activities:The applicant also distributed electrical items for CSR activities to flood-affected people without collecting money. As per Section 17(5)(h) of the CGST Act, input tax credit is not available for goods disposed of as free samples or gifts. The applicant disposed of goods as free supply for CSR activities, necessitating the reversal of input tax credit already availed.3. Applicability of Section 17(5) on CSR expenses:For transactions involving CSR expenses, such as distributing items to flood-affected individuals, input tax credit will not be available as per Section 17(5)(h) of the CGST Act. Goods lost, destroyed, or disposed of as free samples do not qualify for input tax credit under this provision.In conclusion, the Authority for Advance Rulings, Kerala, determined the GST liability for free goods supplied to KSEB and addressed the admissibility of input tax credit for both the distributor transactions and CSR activities. The ruling clarified the application of relevant GST provisions and highlighted the conditions under which input tax credit can be claimed, providing a comprehensive analysis of the issues raised by the applicant.