2020 (4) TMI 593 - AAR - GST

Authority Rules on Credit Eligibility for Transactions: Dhoop, Agarbatti, Incentives, and Vehicle Expenses

The Authority ruled negatively on the credit eligibility for transactions involving Dhoop and Agarbatti, non-monetary incentives to distributors, free ... Input tax credit blocked under Section 17(5)(h) of the CGST Act, 2017 (goods disposed of by way of gift or free samples) - Input tax credit on promotional supplies and non-monetary distributor incentives - Input tax credit treatment of free goods supplied with sale (bundled supplies and price factoring) - Input tax credit restriction under Section 17(5)(a) of the CGST Act, 2017 (motor vehicles and related services)Input tax credit blocked under Section 17(5)(h) of the CGST Act, 2017 (goods disposed of by way of gift or free samples) - Input tax credit treatment of free goods supplied with sale (bundled supplies and price factoring) - Whether input tax credit is available on inputs used to manufacture dhoop or on purchase of dhoop supplied free with an agarbatti pack. - HELD THAT: - The Authority examined the applicant's submission that dhoop supplied with agarbatti is not a gift because its cost is factored into the price and it is supplied only to purchasers. The jurisdictional Commissionerate and the Authority applied Section 17(5)(h) of the CGST Act, 2017, which disallows input tax credit in respect of goods disposed of by way of gift or free samples. The Authority found that the statutory bar under Section 17(5)(h) governs credit on goods given free and, irrespective of commercial pricing or contractual allocation of cost, credit is not admissible for such disposed goods when they amount to gifts or free samples.Input tax credit is not available on inputs used in manufacture of dhoop nor on dhoop purchased from a third party when supplied free with agarbatti.Input tax credit on promotional supplies and non-monetary distributor incentives - Input tax credit blocked under Section 17(5)(h) of the CGST Act, 2017 (goods disposed of by way of gift or free samples) - Whether input tax credit is available on non-monetary incentives (e.g., household appliances) given to distributors as target-based promotional incentives and whether such transfers qualify as supply to the distributor. - HELD THAT: - The applicant characterised target-based non-monetary incentives as contractual obligations and not gifts, arguing they are not fresh supplies. The Authority, having considered the statutory prohibition in Section 17(5)(h) and the Commissionerate's comments, held that credit cannot be availed in respect of goods disposed of as gifts or free samples. The Authority did not accept that commercial arrangements or prior commitments convert such promotional transfers into admissible inputs for credit where they effectively operate as goods disposed in the course of promotion; consequently the statutory bar applies.Input tax credit is not available on non-monetary promotional incentives given to distributors; such transfers do not permit credit.Input tax credit blocked under Section 17(5)(h) of the CGST Act, 2017 (goods disposed of by way of gift or free samples) - Input tax credit treatment of free goods supplied with sale (bundled supplies and price factoring) - Whether input tax credit is admissible on agarbatti units given free on purchase of a carton box of agarbatti. - HELD THAT: - The applicant submitted that the free agarbatti is a commercial device, costed into the carton price, and not a gift. The Authority relied on Section 17(5)(h) and the Commissionerate's view that input tax credit is disallowed on goods disposed of by way of gift or free samples. Applying that provision, the Authority concluded that credit cannot be claimed on agarbatti supplied free even if the cost is factored into pricing or supplied as part of a sales promotion.Input tax credit is not available on agarbatti units given free with a carton purchase.Input tax credit restriction under Section 17(5)(a) of the CGST Act, 2017 (motor vehicles and related services) - Input tax credit on insurance and maintenance of motor vehicles - Whether input tax credit can be availed on insurance and maintenance of motor vehicles purchased for transport of director and employees. - HELD THAT: - The Authority examined Section 17(5)(a) and related sub-clauses which restrict input tax credit in respect of motor vehicles for transportation of persons (subject to specified exceptions) and prescribe conditions for credit on services of insurance and maintenance. The Commissionerate advised that credit is not available in the facts of the applicant's case. Applying the statutory provision and its exceptions, the Authority found that the motor vehicles in question and the related insurance and maintenance do not fall within the exceptions permitting credit and therefore the input tax credit is blocked.Input tax credit is not available on insurance and maintenance of motor vehicles used for transport of the director and employees.Final Conclusion: The Authority ruled negatively on all four questions: input tax credit is disallowed for dhoop supplied free with agarbatti (whether manufactured or purchased), for non monetary promotional incentives to distributors, for free agarbatti units supplied with carton purchases, and for insurance and maintenance of motor vehicles used to transport directors and employees, applying the prohibitions in Section 17(5)(h) and Section 17(5)(a) of the CGST Act, 2017. Issues:1. Credit eligibility on inputs used for manufacturing Dhoop and purchase from a third-party vendor.2. Credit eligibility on non-monetary incentives offered to distributors as part of a sales promotion campaign.3. Credit eligibility on Agarbatti given free on purchase of a Carton Box.4. Credit eligibility on insurance and maintenance of motor vehicles purchased for transportation of Director and Employees.Analysis:1. The applicant sought clarification on credit eligibility for Dhoop and Agarbatti transactions. The applicant argued that the Dhoop offered with Agarbatti is not a gift but a marketing strategy to boost sales. The Authority noted that Section 17(5)(h) restricts credit on goods disposed of as gifts. The Authority ruled negatively on the credit eligibility for both scenarios, emphasizing the direct link between Agarbatti purchase and Dhoop offering.2. Regarding non-monetary incentives like Pressure Cookers offered to distributors, the applicant contended that these incentives are contractual obligations, not gifts. The Authority considered the nature of these incentives and their impact on sales. The ruling was negative on availing credit for such incentives, highlighting the predetermined commitment aspect and contractual nature of the offerings.3. The applicant inquired about credit eligibility for free Agarbatti given with a Carton Box purchase. The applicant justified this practice as cost-effective and beneficial for packaging and administrative purposes. The Authority examined the scenario and ruled negatively on availing credit for the free Agarbatti, emphasizing the pricing strategy and cost considerations.4. Lastly, the applicant questioned the credit eligibility for insurance and maintenance of motor vehicles used for transportation. The applicant argued that these expenses are essential for business operations. The Authority referred to Section 17(5)(a) and the specific provisions related to motor vehicles. The ruling was negative on availing credit for insurance and maintenance of the motor vehicles, citing the statutory restrictions under the GST Act.In conclusion, the Authority ruled negatively on all four issues raised by the applicant, denying credit eligibility for various transactions and expenses based on the provisions of the Central Goods and Services Tax Act, 2017.