2023 (10) TMI 472 - AAR - GST

Gold coins and white goods given as gifts to dealers for achieving sales targets are taxable supply under Section 15 GST Act Rule 30

The AAR Telangana ruled that goods disposed of as gifts to dealers/customers upon achieving stipulated purchase targets constitute taxable supply. The ... Supply in exchange for consideration including monetary value of an act - goods disposed of by way of gift (restriction of ITC) - permanent transfer or disposal of business assets (Schedule I, Sl. No.1) - blocked credit under Section 17(5)(h) - consideration as inclusive definition under Section 2(31) (monetary value of act or forbearance) - course or furtherance of business / promotional inducement - determination of value under Section 15 read with Rule 30Goods disposed of by way of gift (restriction of ITC) - blocked credit under Section 17(5)(h) - course or furtherance of business / promotional inducement - Whether issuance of gold coins and white goods to dealers under the incentive schemes is a 'gift' attracting disallowance of ITC under Section 17(5)(h). - HELD THAT: - The Authority found that the incentive goods are distributed pursuant to a points based promotional scheme which induces dealers to attain specified sales thresholds. The transfer is not a voluntary gratuitous transfer unconnected with any reciprocal expectation; rather it is made in return for the dealer's act of achieving sales targets. The monitory value of that act constitutes consideration for the transfer and the supplies are in the course or furtherance of business. Therefore the transfers cannot be characterised as 'gifts' so as to attract the ITC blockage under Section 17(5)(h). [Paras 7, 8]The transfers are not 'gifts' and ITC on procurement of the incentive goods is not disallowed under Section 17(5)(h).Permanent transfer or disposal of business assets (Schedule I, Sl. No.1) - business assets as items of balance sheet - Whether issuance of gold coins and white goods to dealers amounts to a permanent transfer or disposal of business assets (where ITC has been availed) attracting deemed supply under Schedule I Sl. No.1. - HELD THAT: - The Authority examined the scope of Schedule I Sl. No.1 and the concept of 'business assets'. While Schedule I targets permanent transfers of items forming part of the balance sheet, the promotional transfers in the present scheme arise as incentives tied to sales performance and are not characterised as a permanent disposal of capital or balance sheet assets. Moreover, treating all such promotional issues as business asset disposals would render Section 7 redundant. On the facts, the transfers are taxable as supplies for consideration and do not fall within the Schedule I entry as permanent transfer of business assets. [Paras 7, 8]The transactions are not 'permanent transfer or disposal of business assets' under Schedule I Sl. No.1 and are not taxable as such; they are taxable as supplies (on the basis of inducement/consideration).Supply in exchange for consideration including monetary value of an act - consideration as inclusive definition under Section 2(31) (monetary value of act or forbearance) - determination of value under Section 15 read with Rule 30 - Whether issuance of gold coins and white goods to dealers under the scheme is a supply under Section 7 of the CGST Act, 2017. - HELD THAT: - The Authority applied the statutory definition of 'consideration' which includes the monetary value of any act done in respect of, in response to, or for the inducement of a supply. The incentive goods are supplied in return for the dealer attaining specified sales thresholds; that act is the inducement and gives rise to a reciprocal relationship constituting consideration. Consequently the transfers qualify as supplies in the course or furtherance of business. The value of such supplies is to be determined under Section 15 read with Rule 30 of the CGST Rules. [Paras 7, 8]Yes; the transfers constitute taxable supplies under Section 7, the dealers' act of achieving the stipulated targets amounting to consideration.Final Conclusion: The Authority ruled that the issuance of gold coins and white goods to dealers under the promotional schemes constitutes taxable supplies in return for the dealers' act of achieving stipulated sales targets (consideration), is not a 'gift' attracting disallowance of ITC under Section 17(5)(h), and does not amount to a 'permanent transfer or disposal of business assets' under Schedule I Sl. No.1. Issues Involved:1. Whether the applicant's 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 issuance is considered a 'permanent transfer or disposal of business assets' and treated as a supply under Schedule-I to the CGST Act, 2017.3. Whether the issuance of gold coins and white goods constitutes a supply under Section 7 of the CGST Act, 2017.Summary:Issue 1: Goods Disposed of by Way of GiftThe applicant argued that the issuance of gold coins and white goods to dealers upon achieving purchase targets should not be regarded as 'goods disposed of by way of gift' under Section 17(5)(h) of the CGST Act, 2017. They contended that these items are provided under a contractual obligation and not voluntarily, thus not qualifying as gifts. The Authority found that the transaction is taxable as a supply of goods and therefore eligible for Input Tax Credit (ITC).Issue 2: Permanent Transfer or Disposal of Business AssetsThe applicant contended that the issuance of gold coins and white goods does not constitute a 'permanent transfer or disposal of business assets' as these items are not capitalized in the books of accounts but are revenue expenditures. The Authority ruled that the transaction is a supply of goods and not a permanent transfer or disposal of business assets.Issue 3: Supply under Section 7 of the CGST Act, 2017The applicant argued that the issuance of gold coins and white goods should not be regarded as a supply under Section 7 of the CGST Act, 2017, as there is no consideration received. However, the Authority concluded that the transaction is indeed a supply under Section 7, as the issuance of these items is in response to the dealers achieving sales targets, which constitutes a consideration.Rulings:1. The transaction is taxable as a supply of goods and therefore eligible for ITC.2. The transaction is a supply of goods and not a permanent transfer or disposal of business assets.3. The issuance of gold coins and white goods to dealers upon achieving purchase targets is regarded as a supply under Section 7 of the CGST Act, 2017.