2020 (4) TMI 593 - AAR - GST

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

In Re: M/s. Moksh Agarbatti Co.

The Authority ruled negatively on the credit eligibility for transactions involving Dhoop and Agarbatti, non-monetary incentives to distributors, free ... Input Tax Credit (ITC) - Supply of Dhoop as incentive or gifts or as freebies with the supply of Agarbatti (consisting of 10 pieces of Agarbatti) - credit of Inputs used for manufacture of Dhoop - Purchase of dhoop from a third party vendor - credit on the non-monetary incentives - credit of insurance and maintenance of the motor vehicles used for transport of Director and Employees. Credit on inputs used for manufacture of Dhoop - Purchase of dhoop from a third party vendor - HELD THAT:- As per Section 17(5)(h) of the Central Goods and Service Tax Act, 2017, credit is not allowed. Non-monetary incentives like say Pressure Cooker - HELD THAT:- As per Section 17(5)(h) of the Central Goods and Service Tax Act, 2017, credit is not allowed. Credit of the Agarbatti given free of cost - HELD THAT:- As per Section 17(5)(h) of the Central Goods and Service Tax Act, 2017, credit is not allowed. Credit of insurance and maintenance of these motor vehicles - HELD THAT:- As per Section 17(5)(a) of the Central Goods and Service Tax Act, 2017, such vehicles not eligible for credit - credit denied. 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.