ITC Availability

[Ethirajan Parthasarathy]

It is common that a business entity distributes to dealers and well-wishers calendars and diaries in the New Year. Such calendars are specially made with details of products traded / manufactured by the entity printed on the same.

Though calendars are technically “gifted”, calendars etc… attract many eyeballs and many others also become aware of the company’s products.

In the above circumstances, are we right in claiming ITC on specially bought out calendars etc which are distributed free of cost.

[KASTURI SETHI]

Sh. Ethirajan Parthasarathy Ji,

You are NOT on right track. Not litigation free. You are well aware of the decisions of AARs in favour of the department. There are case laws (including Supreme Court ) pertaining to pre-GST era which disallow such credit.

In my view, such availment of ITC is also hit by Section 17(5)(g) of CGST Act. Moreover, such availment of ITC does not conform to even the basic conditions laid down in Section 16 of CGST Act.

[KASTURI SETHI]

2021 (10) TMI 1117 - AUTHORITY FOR ADVANCE RULING, TAMILNADU - IN RE : GRB DAIRY FOODS PVT. LTD.

 

[KASTURI SETHI]

2021 (4) TMI 839 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA - IN RE : PAGE INDUSTRIES LTD.

 

[KASTURI SETHI]

In order to avail ITC , output tax payment is an absolutely must.

2019 (6) TMI 1305 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - IN RE : SANOFI INDIA LIMITED

[GUNASEKARAN K]

Goods disposed by way of Gift or Free Samples either in the name of Business Promotion or Advertisement & Marketing to promote the brand or market products, such goods can be considered as “inputs” as defined in Section 2(59) of the CGST Act, 2017. However, the GST paid on the same cannot be availed as input tax credit in view of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act, 2017.

[Padmanathan KV]

Prima facie it is covered under section 17(5).

However, if the diary/ calender, etc... bear the name and logo of the company or its product etc... and you can successfully establish that these are not "gift" but rather these are purely promotional/ advertisement materials distributed for brand recognition, then ITC can be availed.

Needless to say, it is not free from litigation.

[Ethirajan Parthasarathy]

Dear Mr.Padmanathan,

Yes. Your view is also supported by recent decision of Karnataka AAR in the case of Oriental Cements Limited - 2023 (9) TMI 126 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA. But in the same case, AAR has also given the finding the distribution of such items will be treated as “supply”. It may further be noted such deemed supply will be applicable irrespective of value of promotional items unlike threshold limit prescribed for freebies given to employees.

AI Summary

Input Tax Credit denial for promotional calendars: GST exclusions and deemed-supply rules limit credit except in tight promotional cases.
Availability of Input Tax Credit on specially printed calendars and diaries distributed free is generally constrained by statutory exclusions and eligibility conditions, including the requirement of corresponding output tax liability. While many rulings disallow credit for gifts or free samples, an arguable distinction exists where items bearing the taxpayer's name or logo function as promotional or advertising materials; such factual characterization may support ITC claims but is contested and may attract a deemed supply treatment with attendant GST consequences.