Company denied GST Input tax credit on goods for incentives. Input tax credit not available for gifts/free samples.

The Authority ruled that a Private Limited Company engaged in manufacturing decorative paints was not eligible to claim GST Input tax credit on items purchased for incentive schemes promoting their products. The company's procurement of goods for incentives did not qualify as a supply under the CGST Act, as they were disposed of without consideration. Citing relevant provisions, the Authority concluded that input tax credit was not available on goods and services used for gifts or free samples. Therefore, the applicant was deemed ineligible to claim Input tax credit on goods and services provided as incentives to dealers, painters, and others for business promotion.

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Issues:
- Eligibility to claim GST Input tax credit on items purchased for business.

Analysis:
The case involved an application for an Advance Ruling under Section 97 of the CGST Act, 2017 & KGST Act, 2017 regarding the eligibility to claim GST Input tax credit on items purchased for business by a Private Limited Company engaged in manufacturing decorative paints. The company sought clarification on whether they could claim Input tax credit on items procured for incentive schemes aimed at promoting their products. The company provided details of their manufacturing plants, marketing strategies, and incentive schemes like Painters Schemes, Dealers Incentive Schemes, and Gold Schemes. They explained that these schemes involved distributing items like TVs, refrigerators, and gold coins to dealers and painters as incentives. The company argued that these items were purchased for furthering their business and not for sale.

During the personal hearing, the applicant reiterated their stance, emphasizing that the incentive items were procured from Composition taxable persons and used solely for business promotion. The Authority considered the submissions and relevant facts, noting that the applicant supplied paints, claimed input tax credit on raw materials, and provided incentives to dealers and painters without any consideration. The Authority highlighted that the goods and services procured and distributed as incentives were disposed of without any consideration, thus not qualifying as a supply under Section 7 of the CGST Act.

The Authority referred to Section 17(5)(h) of the CGST Act, which disallows input tax credit on goods disposed of as gifts or free samples. They concluded that since the applicant purchased items for distribution as gifts under incentive schemes, they were not entitled to avail Input tax credit on such items. Additionally, the Authority addressed the provision of free travel services as incentives and cited a circular clarifying that input tax credit would not be available on services used to offer gifts or free samples without consideration. Consequently, the Authority ruled that the applicant was not eligible to claim Input tax credit on goods and services used for incentives provided to dealers, painters, and other individuals under the CGST / SGST / IGST Act.

In conclusion, the Authority's ruling clarified the ineligibility of the applicant to claim Input tax credit on inward supplies of goods and services used for providing incentives in the form of gifts to promote their business activities.

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