Promotional gifts to retailers without consideration are gifts not discounts, making input tax credit unavailable under GST

AAR UP ruled that promotional gifts distributed to retailers without consideration qualify as gifts rather than discounts, making input tax credit unavailable on goods procured for such schemes. The authority also denied ITC on hotel services and catering expenses for business conferences, holding that Section 17(5)(b) of CGST Act 2017 restricts ITC on food and beverages unless the registered person is engaged in the same business category or provides such services as part of taxable composite supply.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for inputs/input services procured for promotional schemes.
2. Admissibility of ITC on tax paid for services provided by hotels (including accommodation, food & beverages) and supply of food and beverages by outside caterers for business conference meetings.

Issue-wise Detailed Analysis:

1. Eligibility of Input Tax Credit on GST Paid for Inputs/Input Services Procured for Promotional Schemes:

The applicant, engaged in trading animal health products, introduced promotional offers such as "BUMPER OFFER" and "WINTER BONANZA," where they provided additional products (e.g., lunch boxes, sandwich makers) to retailers for free. The applicant sought a ruling on the admissibility of ITC on the procurement of these promotional items.

The eligibility of ITC is governed by Sections 16 and 17 of the CGST Act, 2017. Section 16(1) allows credit for input tax charged on goods/services used in the course or furtherance of business. However, Section 17(5) restricts ITC on certain items, including goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.

The applicant argued that the promotional items are used in furtherance of business and should not be considered gifts. However, the Authority found that these items, distributed voluntarily and without consideration, qualify as gifts. The promotional items are for personal consumption by retailers, thereby falling under the restrictions of Section 17(5)(g) and (h). Consequently, the tax paid on these goods is not eligible for ITC.

2. Admissibility of Input Tax Credit on Tax Paid for Hotel Services (Including Accommodation, Food & Beverages) and Supply of Food and Beverages by Outside Caterers for Business Conference Meetings:

The applicant also sought a ruling on the admissibility of ITC on tax paid for services provided by hotels (including accommodation, food & beverages) and the supply of food and beverages by outside caterers for business conference meetings.

Section 17(5)(b) of the CGST Act, 2017, restricts ITC on food and beverages, outdoor catering, and related services unless these services are used for making an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. The applicant, engaged in trading animal health products, does not provide food or catering services. Therefore, even if these services are used in the course of business, ITC is not admissible due to the express bar under Section 17(5)(b)(i).

The applicant's reliance on the ruling in the case of M/s All Rajasthan Corrugated Board and Box Manufacturers Association was found inapplicable, as the facts of the cases differ significantly.

Ruling:

1. Question 1: Whether the GST paid on inputs/input services procured for promotional schemes is eligible for ITC under the GST law in terms of Section 16 read with Section 17 of the CGST Act, 2017Rs.
- Answer: Negative.

2. Question 2: Whether ITC is admissible in respect of tax paid on:
- i. Services provided by the hotel including accommodation, food & beverages.
- ii. Supply of food and beverages by outside caterers for business conference meetings.
- Answer: Negative.

This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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