Input Tax Credit (ITC) Denied for Shubh Labh Loyalty Program & Promotional Goods

The authority ruled that Input Tax Credit (ITC) is not available on the GST paid for expenses related to the Shubh Labh Loyalty Program and promotional goods given as brand reminders. The items were considered gifts under Section 17(5)(h) of the CGST Act, as they were distributed voluntarily without a formal contractual obligation, thus falling outside the scope of ITC eligibility under Section 16(1).

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Issues Involved:
1. Availability of Input Tax Credit (ITC) on GST paid for expenses incurred towards promotional schemes of Shubh Labh Loyalty Program.
2. Availability of ITC on GST paid for expenses incurred towards promotional goods given as brand reminders.

Detailed Analysis:

Issue 1: ITC on Promotional Schemes of Shubh Labh Loyalty Program

Applicant's Contentions:
- Sanofi India Limited (the applicant) distributes products through promotional schemes such as the Shubh Labh Loyalty Program to promote their brand and enhance sales.
- Under this program, distributors/wholesalers earn rewards based on the quantity of goods sold, which can be redeemed for items like trips and watches.
- The applicant claims ITC on GST paid for these promotional items, arguing that these expenses are in furtherance of business as per Section 16(1) of the CGST Act.
- The applicant argues that these items are not "gifts" as they are given under a contractual obligation and thus should not fall under the restriction of Section 17(5)(h) which disallows ITC on goods disposed of by way of gift or free samples.

Authority's Observations:
- The authority noted that the promotional items given under the Shubh Labh Loyalty Program are not accompanied by any formal contractual obligation and are given voluntarily, thus qualifying as "gifts."
- The authority referred to the definition of "gift" from other statutes and jurisprudence, concluding that promotional items given without consideration are gifts.
- The authority emphasized that as per Section 17(5)(h), ITC is not available for goods disposed of by way of gift, notwithstanding the provisions of Section 16(1).

Decision:
- The authority ruled that ITC is not available on the GST paid for expenses incurred towards the Shubh Labh Loyalty Program, as these items are considered gifts and fall under the restriction of Section 17(5)(h).

Issue 2: ITC on Promotional Goods Given as Brand Reminders

Applicant's Contentions:
- Sanofi distributes items like pens, notepads, and key chains embossed with their brand name to promote their products.
- The applicant claims ITC on GST paid for these promotional goods, arguing that these items are used in the course of business and should be eligible for ITC under Section 16(1) of the CGST Act.
- The applicant contends that these items are not gifts as they serve as advertisement tools and are given to promote sales.

Authority's Observations:
- The authority noted that the promotional goods given as brand reminders are distributed without any formal contractual obligation and are given voluntarily, thus qualifying as "gifts."
- The authority referred to the definition of "gift" and concluded that promotional items given without consideration are gifts.
- The authority emphasized that as per Section 17(5)(h), ITC is not available for goods disposed of by way of gift, notwithstanding the provisions of Section 16(1).

Decision:
- The authority ruled that ITC is not available on the GST paid for expenses incurred towards promotional goods given as brand reminders, as these items are considered gifts and fall under the restriction of Section 17(5)(h).

Conclusion:
- The authority concluded that ITC is not available for the GST paid on expenses incurred towards both the Shubh Labh Loyalty Program and promotional goods given as brand reminders, as these items are considered gifts and are subject to the restrictions of Section 17(5)(h) of the CGST Act.

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