Tax Ruling: Supply Nature & Input Tax Credit on Promotional Items

The case involved determining the nature of supply and the admissibility of input tax credit regarding a promotional scheme for hosiery goods. The Authority ruled that the supply of hosiery goods and promotional items are separate supplies, not constituting a mixed or composite supply. Tax would be levied on each item individually. Additionally, the applicant was entitled to claim input tax credit on items sold at nominal prices under the promotional scheme as they were not considered gifts but sold for a consideration, making them eligible for credit.

---

---

Issues Involved:
1. Determination of nature of supply.
2. Admissibility of input tax credit.

Detailed Analysis:

1. Determination of Nature of Supply:
The applicant intends to manufacture and supply hosiery goods and proposes a promotional scheme where retailers can purchase items like gold coins, refrigerators, coolers, split air conditioners, etc., at a nominal price upon buying a specified quantity of hosiery goods. The key question is whether these transactions constitute individual supplies or a mixed supply under Section 2(74) read with Section 8(b) of the CGST Act, 2017.

The applicant contends that the supply of hosiery goods and promotional items should not be classified as a mixed supply because:
- The supplies are not made in conjunction with each other.
- They are not made for a single price.
- They do not constitute a composite supply.

The Authority agrees with the applicant, noting that:
- Mixed supply requires two or more individual supplies made for a single price, which is not the case here as separate invoices are issued for each supply.
- Composite supply requires the supplies to be naturally bundled and supplied in conjunction with each other, which is also not applicable here.

Therefore, the supply of hosiery goods and promotional items are considered separate supplies, and tax will be levied at the rate applicable to each item as notified by the Government.

2. Admissibility of Input Tax Credit:
The applicant seeks to avail input tax credit on items sold at nominal prices under the promotional scheme. Section 16 of the GST Act entitles a registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. The applicant argues that the promotional scheme is intended to boost sales, qualifying it as an activity undertaken in the course or furtherance of business.

However, Section 17(5)(h) of the GST Act restricts input tax credit on goods disposed of by way of gift or free samples. The applicant contends that the promotional items are not gifts since they are sold at a nominal price and not given voluntarily without consideration. The Authority agrees, stating that since the goods are sold for a consideration, even if nominal, they do not qualify as gifts, and the restriction under Section 17(5)(h) does not apply.

The value of the promotional items must be determined as per Section 15 read with Rule 27 of the CGST/WBGST Rules, 2017, as price is not the sole consideration for the supply.

Ruling:
1. Supply of goods at nominal price to retailers against purchase of specified units of hosiery goods pursuant to a promotional scheme would qualify as individual supplies taxable at the rates applicable to each of such goods as per Section 9 of the GST Act.
2. Credit of the input tax paid on the items being sold at nominal prices would be available to the applicant.

---