2021 (10) TMI 1117 - AAR - GST

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 ... Input tax credit entitlement under Section 16(1) - Blocked credits under Section 17(5)(g) and Section 17(5)(h) - Meaning and effect of 'gift' versus 'reward' for GST purpose - Application of non-obstante clause in Section 17(5) overriding Section 16(1) - Use for personal consumption as disqualification for ITCInput tax credit entitlement under Section 16(1) - Blocked credits under Section 17(5)(g) and Section 17(5)(h) - Meaning and effect of 'gift' versus 'reward' for GST purpose - Use for personal consumption as disqualification for ITC - Admissibility of input tax credit on GST paid for goods/services procured as rewards (Trip to Dubai, Gold vouchers, Televisions, Air coolers) under the 'Buy n Fly' promotional scheme. - HELD THAT: - The Authority accepted that the supplies to the applicant bore tax invoices and were procured in furtherance of business, thus prima facie satisfying Section 16(1). However, Section 17(5) operates as a non-obstante provision overriding Section 16(1) and specifically disallows credit in respect of goods used for personal consumption and goods disposed of by way of gift or free samples. The rewards distributed to retailers under the scheme are personal consumables handed over to eligible retailers without separate consideration or taxation documents and were distributed voluntarily on achievement of targets. The Authority accordingly treated those rewards as gifts/ personal consumption by the recipients. That characterization is decisive because Section 17(5)(g) bars ITC on goods/services used for personal consumption and Section 17(5)(h) bars ITC where goods are disposed of by way of gift. The inclusion of promotional costs in product costing or the existence of an advertised scheme and incremental sales does not alter the legal disqualification under the express provisions of Section 17(5). Consequently, tax paid on the specified rewards is not available as input tax credit. [Paras 7, 8, 9]GST paid on the specified rewards procured for the 'Buy n Fly' scheme is not eligible for input tax credit under Section 17(5)(g) and 17(5)(h) of the CGST Act, 2017 (and corresponding State Act).Final Conclusion: The Advance Ruling holds that GST paid on Trip to Dubai, Gold vouchers, Televisions and Air coolers procured for distribution as rewards under the 'Buy n Fly' promotional scheme is not available as input tax credit because such items qualify as gifts/personal consumption and are specifically disallowed by Section 17(5)(g) and (h). 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.