Promotional scheme GST not eligible for Input Tax Credit

The Authority ruled that the GST paid on inputs/input services procured for a promotional scheme named 'Buy n Fly' was not eligible for Input Tax Credit under Section 17(5)(g) and (h) of the CGST Act, 2017 and TNGST Act, 2017. This decision was based on the finding that the rewards provided under the scheme were considered gifts for personal consumption, falling outside the scope of ITC eligibility as per the relevant legal provisions.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inputs/input services procured for a promotional scheme under Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017.

Issue-wise Detailed Analysis:

1. Background and Scheme Details:
The applicant, engaged in the manufacture and supply of ghee and other products, launched a sales promotional scheme named 'Buy n Fly' from 8th April 2019 to 8th July 2019. The scheme aimed to increase sales by rewarding retailers based on their purchase quantities with items such as trips to Dubai, gold vouchers, televisions, and air coolers.

2. Applicant's Argument:
The applicant argued that the promotional scheme was a business activity aimed at increasing sales, thus the inputs and input services procured for the scheme should be eligible for ITC under Section 16 of the CGST Act. They asserted that the rewards were not gifts but part of a contractual obligation to enhance sales, and the cost of these rewards was included in the product pricing, thereby forming a consideration.

3. Legal Provisions and Interpretations:
- Section 16(1) of the CGST Act: Allows ITC on goods/services used in the course or furtherance of business.
- Section 17(5)(g) and (h) of the CGST Act: Restricts ITC on goods/services used for personal consumption and goods disposed of by way of gift or free samples.

4. Jurisdictional Authority's Remarks:
The State Jurisdictional Authority stated that the rewards given without consideration, even for sales promotion, do not qualify as inputs eligible for ITC as per Section 17(5)(h). They cited a similar ruling (Biostadt India Ltd) where ITC was denied for promotional rewards.

5. Analysis by the Authority:
- The promotional items such as air coolers, LED TVs, Dubai trips, and gold vouchers were considered to be for personal consumption by the recipients (retailers).
- The rewards were given voluntarily without consideration, qualifying them as gifts under Section 17(5)(h), thereby blocking the ITC.
- The argument that the cost of rewards was included in the product pricing did not hold as the items were ultimately for personal use and not directly used in the business operations of the applicant.

6. Conclusion:
The Authority concluded that the inputs/input services procured for the 'Buy n Fly' promotional scheme were in the nature of gifts for personal consumption and thus, ITC on these items is not available under Section 17(5)(g) and (h) of the CGST Act, 2017.

Ruling:
The GST paid on inputs/input services procured by the applicant to implement the 'Buy n Fly' promotional scheme is not eligible for Input Tax Credit under Section 17(5)(g) and (h) of the CGST Act, 2017 and TNGST Act, 2017.

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