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 addressed the admissibility of input tax credit for distributor transactions and CSR activities. The ruling clarified the application of relevant GST provisions, emphasizing conditions for claiming input tax credit and the applicability of Section 17(5) of the CGST Act, 2018 on CSR expenses.

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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.

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