Promotional goods like T-shirts and gold coins used as gifts don't qualify for input tax credit under Section 17(5)(h)

The Madras HC dismissed a petition challenging denial of input tax credit on goods purchased for sales promotion. The petitioner sought credit for T-shirts and gold coins used in promotional activities. The court held that Section 17(5)(h) of GST enactments specifically excludes input tax credit for goods disposed as gifts or free samples, regardless of whether goods are manufactured or traded. Since promotional items fall under this exclusion, the petitioner was not entitled to input tax credit despite Section 16(1) generally allowing credit for business-related purchases.

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Issues:
Challenging Impugned Orders dated 31.08.2021 by the Appellate Commissioner under TNGST Act, 2017 regarding denial of Input Tax Credit on goods purchased for sales promotion and stock variation.

Analysis:

1. Denial of Input Tax Credit for Sales Promotion Goods:
The petitioner contested the denial of Input Tax Credit on goods like "Gold Coins" and "T-shirts" purchased for sales promotion activities. The petitioner argued that under Section 16(1) of the GST Enactments, they were entitled to claim Input Tax Credit for goods used in the course of business. The petitioner emphasized that sales promotional activities had been recognized under previous tax regimes and supported by Supreme Court decisions. However, the respondents relied on Section 17(5)(h) of the CGST Act, 2017, which prohibits claiming Input Tax Credit for goods disposed of by way of gift or free samples. The court upheld this restriction and dismissed the petitioner's claim for Input Tax Credit on sales promotion goods.

2. Stock Variation Issue:
In addition to the sales promotion matter, the petitioner raised concerns about stock variation following an inspection on 28.08.2019. The petitioner argued that the inspection did not adhere to standard stock audit principles, challenging the denial of Input Tax Credit based on the stock difference. The court found that the petitioner failed to establish grounds for interference in this regard. The court held that the Order affirming the denial of Input Tax Credit on stock variation for the Assessment Year 2019-2020 was justified and did not warrant any intervention.

3. Legal Interpretation and Precedents:
The court analyzed Section 16(1) and Section 17(5)(h) of the GST Enactments to determine the eligibility for Input Tax Credit. It clarified that Section 17(5) acts as an exception to Sections 16(1) and 18(1) of the respective GST Acts. The court emphasized that the restriction under Section 17(5)(h) applied specifically to goods disposed of as gifts or free samples, not covered by previous tax laws. The court referenced conflicting views from Advance Ruling Authorities but ultimately upheld the restriction on Input Tax Credit as per the clear provisions of the GST Acts.

4. Dismissal of Writ Petitions:
Considering the arguments presented by both parties, the court dismissed the Writ Petitions challenging the Impugned Orders. The court concluded that the petitioner was not entitled to Input Tax Credit for goods used in sales promotion activities or for stock variations based on the legal provisions and precedents cited. The dismissal was without costs, and connected Miscellaneous Petitions were closed, bringing an end to the legal proceedings.

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