Input tax credit on Lottery Gifts

[Priyesh Mamnani]

A private lottery distributor selling lottery tickets to customers. He is purchasing gifts that are to be distributed to the lottery winners after the result.

Whether the lottery distributor is eligible to claim the GST credit on gifts given to lottery winners as per the GST law?

[Charu Tyagi]

Though the valuation of lottery tickets will be done as per valuation rule 31A of CGST Rules, for output GST liability. However, any item purchase for the purpose to distribute as 'GIFT' is blocked u/s 17(5)(h) of CGST Act.

[GUNASEKARAN K]

"NO"

Please refer Sec. 17(5)(h) of CGST Act, Disposal of any goods by way of Gift, Free Sample, Prizes, lost, stolen, destroyed and written off are not eligible to claim ITC on related purchases.

[KASTURI SETHI]

I agree with both experts. Gift is private. Gift is incentive. If a registered person (donor) gives gift to another person (donee), he cannot charge any amount in any form from the donee. If he charges any amount (in kind ) from the donee, then that item will be out of the definition of gift.

Input Tax Credit is admissible only if tax is paid on outward supply otherwise such ITC is hit by Section 17(5)(h) of CGST Act.

 

[KASTURI SETHI]

In continuation of my reply, the following decisions are worth reading :-

"Credit can be admissible only if output tax is paid at time of their giving away because under GST law, no ITC can be claimed on input supplies if no tax is paid on output supplies - Nothing has been brought on record that any output tax has been paid on such Gold coins - Accordingly, distribution of Gold coins as above is nothing but supply of gifts, ITC in respect of which is specifically barred under Section 17(5)(h) of Central Goods and Services Tax Act, 2017" ------- AAR Maharashtra 2019 (3) TMI 540 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - Biostadt India Ltd.

"Input Tax Credit - Input goods/services procured for promotional rewards such as Trip to Dubai, Gold voucher, Televisions, Air-coolers for intended use in furtherance of applicant’s business - Promotional rewards distributed to retailers under ‘Buy n Fly’ scheme, are goods/services in nature of gifts for personal consumption of receiver specifically restricted under Section 17(5)(g) of Central Goods and Services Tax Act, 2017 - Further, promotional rewards in goods being consumables in nature are gifts extended to retailers for promoting their products, voluntarily distributed by applicant without any consideration/Tax invoice and are in nature of gifts meant for personal consumption - Hence, input tax credit of taxes paid on goods/services procured to be distributed as rewards is not available to them under Section 17(5)(g) read with Section 17(5)(h) of Central Goods and Services Tax Act, 2017. [para 8]"----AAR, Tamil Nadu Applicant party :  - 2021 (10) TMI 1117 - AUTHORITY FOR ADVANCE RULING, TAMILNADUGRB DAIRY FOODS PVT. LTD. upheld by AAAR Tamil Nadu reported as 2022 (3) TMI 1368 - APPELLATE AUTHORITY FOR ADVANCE RULING, TAMILNADU

"Input Tax Credit - Purchase and distribution of sweets, dry fruits, coins or silver items for the purpose of business promotion not an activity carried out in the course or furtherance of business - Therefore, applicant not eligible for credit of input tax against the inward supply of these items - Section 17(5) of Central Goods and Services Tax Act, 2017. [paras 4.9, 4.10]"-------AAR Haryana reported as 2020 (2) TMI 1416 - AUTHORITY FOR ADVANCE RULING, HARYANA - Mudashi Auto Parts (P) Ltd.

"Input Tax Credit - Gifts - Incentive scheme for dealers and specified buyers - Applicant, a paint manufacturer, granting post-sale incentives to dealers and buyer painters under special schemes and distributing gifts like TV, Gold and Foreign Trips without receiving any consideration from them - Accordingly, such distribution not covered under term ‘supply’ under GST law - Applicant himself not paying any GST on these items - Further, Section 17(5) of Central Goods and Services Tax Act, 2017 read with C.B.I. & C. Circular No. 92/11/2019-GST, dated 7-3-2019 specifically barring availing of ITC on goods disposed of by way of gifts or free supply - ITC not admissible - Sections 7 and 17(5) of Central Goods and Services Tax Act, 2017. [paras 5.4, 5.5, 5.6, 5.7, 5.8, 5.9]"------AAR Karnataka reported as 2019 (10) TMI 568 - AUTHORITY FOR ADVANCE RULING, KARNATAKA - SURFA COATS (INDIA) PVT. LTD.

Input Tax Credit - Promotional items distributed voluntarily free of cost to EBOs/distributors/retailers for purpose of giving away to customers - Carry bags, calendars, diaries, pens, etc. embossed/engraved with brand name and supplied voluntarily without any contractual obligation, acquire character of gifts and barred from being eligible for input tax credit in terms of Section 17(5)(h) read with Section 17(2) of Central Goods and Services Tax Act, 2017. [para 17]---AAAR,Karnataka reported as 2021 (4) TMI 839 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA - Page Industries Ltd.

If GST is paid on the gift given to related persons/customers, in that situation ITC will be available to the registered person (donor) on the purchase invoices.

[Kiran Tahelani]

to my limited knowledge, gift means something that you give to somebody without expecting anything in return or without consideration. while in this case i am getting consideration which is in form of amount charged for lottery tickets and i am buying goods which will be used for taxable supply, whosoever wins. Therefore ITC shall be eligible, however matter is not free from litigation. In my view goods are used for outward supplies and its not a gift. i may be wrong, experts may correct me.

[KASTURI SETHI]

(1). First situation : Gift is not given with each lottery ticket. Here gift is given to the winners (selected buyers) after the results. It is presumed that cost of gift is not included in the lottery ticket. ITC is not admissible.

(2) Second situation : If gift is to be treated as advertisement cost, the cost of gift will be included in the taxable value of the lottery ticket. Thus tax will be paid on outward supply. In that situation, ITC will be allowed.

For example ; suppose a plastic mug is distributed free with Bournvita . The cost of mug has to be treated as advertisement cost and such cost will be included in the taxable value of Bournvita. De fecto, the gift of mug is not free. If the gift is not free, ITC will not be hit by Section 17(5)(h) of the CGST Act.

So eligibility of ITC depends upon the facts of each case. However, it is worth while to know what is a gift in the eyes of taxation laws.

What is gift ?

As per The Law Lexicon - The Encyclopedic Law Dictionary and S.B.Sarkar's Words and Phrases of Excise, Customs and Service Tax Dictionary (Centax Publications Private Ltd.:-

Gift is something voluntarily transferred by one person to another without compensation.

Gift is a thing given willingly to someone without payment, a present.

Gift is a gratuitous transfer of ownership of property

Gift is incentive whether given in cash or kind

Gift cannot be treated trade discount----Supreme Court [Glaxo India Ltd. v. Collector - 1996 (4) TMI 536 - SC ORDER]

There cannot be a gift without a giving and taking.

Gift is private.

[PAWAN KUMAR]

I agree with the reply by Kasturi Sir. Goods written off or disposed off by way of Gifts as per 17(5)(h), itc under blocked category.

[Shilpi Jain]

The goods/prizes that need to be given to the winners is an obligation and cannot be regarded as gift.

ITC would be eligible

[Shilpi Jain]

Also I remember there was an advance ruling or a Tribunal decision which held in the case of an event organised by a company, that the credit w.r.t. the prizes purchased would be eligible as the price of the entry fee includes the amount towards these prizes, on which GST is paid.

[KASTURI SETHI]

If tax is paid on outward supply, there is no dispute about availability of ITC .

If prices of lottery tickets are inclusive of the price of gift, it is so-called gift. In other words, such gift is an eye-wash to attract the buyer.

[PAWAN KUMAR]

Gift cannot be obligatory. These are given as per the discretion of the owner/management. The claim of ITC on the gifts are under blocked category, no such tribunal/ruilings has allowed itc.

if it would have been allowed there were different situations and those were only to that extent of case/situations. In general law which are in prevailing since July2017, ITC on gifts are not claimable.

request to kindly share the ruilings for better understanding.

[Padmanathan KV]

Following facts are to be cleared by the querist-

1. whether the lottery price itself is the said "gift"?

or

2. whether the gift is given over and above the actual lottery price?

This clarification would clear the air

[Amit Agrawal]

I agree with Shri Padmanathan Ji!

Real dispute under discussion here is factual in nature i.e. is there really a 'gift' involved (i.e. without any consideration received from lottery-winner & without having obligation to give upon lottery distributor)?

AI Summary

Lottery Distributor's GST Input Tax Credit on Gifts Debated; Section 17(5)(h) CGST Act Blocks ITC on Gifted Goods A private lottery distributor inquired about the eligibility to claim GST input tax credit (ITC) on gifts given to lottery winners. Multiple experts responded, referencing Section 17(5)(h) of the CGST Act, which blocks ITC on goods disposed of as gifts. The consensus was that gifts are not eligible for ITC unless the cost is included in the taxable value of the lottery ticket, thus making it part of the outward supply. Some argued that if the gift is an obligation or part of the lottery price, it might not be considered a gift, potentially allowing ITC. However, this remains a contentious issue.