2023 (9) TMI 126 - AAR - GST

Target-based incentive schemes with gold coins and white goods are taxable supply, not gifts, input tax credit allowed under Section 16

In Re: M/s. Orient Cement Limited,

Karnataka AAR ruled that target-based incentive schemes involving gold coins and white goods constitute taxable supply, not gifts. The applicant's ... Input Tax Credit - supply or not - Nature of target-based gift/incentive - applicant’s obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period - goods disposed of by way of gift or not - Input Tax Credit - permanent transfer or disposal of business assets where ITC has been availed on such assets - HELD THAT:- From the promotional / incentive schemes, it is clear that the applicant is supplying goods to his dealers as incentive for achieving the targets and the same is part of a scheme which the parties are in knowledge in advance. It is also noted that it is not supply of any quantity of gold/ white goods to any dealer, but a specified quantity determined as per the terms and conditions of the scheme documents - Thus it is seen that achievement of marketing targets set by the applicant, is an inducement from the dealer or in other words non-monetary consideration paid by the dealers for the supply of gold / white goods by the applicant. As per entry 1 of the Schedule I, “permanent transfer or disposal of business assets where input tax credit has been availed on such assets” would cover the activity of distribution of white goods or gold as incentive and hence would be treated as a supply of such goods as per clause (c) of Section 7(1) of the CGST Act. Whether the input tax credit of the tax paid on the gold coins and white goods are admissible or not? - HELD THAT:- Subject to the charging of tax in the invoices issued by the suppliers of gold coins and white goods, the same is eligible to be claimed as input tax credit and the same has been claimed by the applicant - applicant is issuing these gold coins and white goods so procured as incentives as per the agreement reached between himself and the recipients. It is only issued subject to the fulfilment of certain conditions and stipulations. Gift is something which is given without any conditions and stipulations and hence the same cannot be covered under the scope of “gift” - Since the goods are not given as gifts this clause is not applicable to the present transaction - the input tax credit so claimed under section 16 does not become unavailable under section 17(5)(h) of the CGST Act. Given that the distribution of gold coins and white goods are treated as supplies and attracts the tax liability on such distribution, the input tax credit is not restricted under any of the provisions of Section 17 more so under section 17(5)(h) of the CGST Act. Issues Involved:1. Whether the obligation to issue gold coins and white goods to dealers upon achieving purchase targets is regarded as 'goods disposed of by way of gift' under Section 17(5)(h) of the CGST Act, 2017.2. Whether such obligation is considered a 'permanent transfer or disposal of business assets where ITC has been availed' and subjected to GST under SI. No. 1 of Schedule I to the CGST Act, 2017.3. Whether such obligation constitutes a supply under Section 7 of the CGST Act, 2017.Summary:Issue 1: Goods Disposed of by Way of GiftThe applicant sought clarification on whether issuing gold coins and white goods to dealers upon achieving purchase targets would be considered 'goods disposed of by way of gift' under Section 17(5)(h) of the CGST Act, 2017, thereby restricting Input Tax Credit (ITC). The applicant argued that these items are not gifts as they are provided based on a contractual obligation and are incentives for achieving sales targets. The Authority ruled that these items are not gifts since they are issued under specific conditions and stipulations. Therefore, ITC on these items is not restricted under Section 17(5)(h).Issue 2: Permanent Transfer or Disposal of Business AssetsThe applicant questioned if the obligation to issue gold coins and white goods would be regarded as a 'permanent transfer or disposal of business assets where ITC has been availed' and treated as a supply subject to GST under SI. No. 1 of Schedule I to the CGST Act, 2017. The Authority noted that the distribution of these items is a form of incentive and is part of a pre-agreed scheme. The transfer of these items is made for a non-monetary consideration (achievement of sales targets). Hence, it qualifies as a supply under the definition in Section 7(1) of the CGST Act. The Authority also clarified that business assets include inventory and do not need to be capitalized. Therefore, the distribution of these items is treated as a supply under SI. No. 1 of Schedule I.Issue 3: Supply under Section 7 of the CGST ActThe applicant sought clarity on whether the obligation to issue gold coins and white goods would be regarded as a supply under Section 7 of the CGST Act, 2017. The Authority confirmed that the distribution of these items constitutes a supply as defined under Section 7(1) of the CGST Act. The transfer is made for a consideration (achievement of sales targets), thus falling within the scope of 'supply.'Ruling:1. The obligation to issue gold coins and white goods is not regarded as 'goods disposed of by way of gift,' and ITC is not restricted under Section 17(5)(h) of the CGST Act, 2017.2. The obligation is considered a 'permanent transfer or disposal of business assets where ITC has been availed' and is treated as a supply subject to GST under SI. No. 1 of Schedule I to the CGST Act, 2017.3. The obligation constitutes a supply under Section 7 of the CGST Act, 2017.