ITC on goods received for business promotion or marketing expenses

[Rohit K]

A company is into dealership of motor vehicles. They have purchased some gift items worth crores to give to their agents who bring the business to them. The gifts are given on monthly basis to their agents irrespective of the business they bring to them.

Since the outward supply is of vehicles and the inward supply is of some gift items, is ITC eligible in this case? Please help.

[Shilpi Jain]

If these articles are given without any obligation (i.e. not mentioned in any document that the dealers would be entitled to these) then credit would not be eligible.

[VENU K]

We can visualise two scenarios in this case. Both will have the effect of making ITC meaningless in my opinion

1. Sec 17(5)(h) Blocks input on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

No ITC alowable in this case 

2. Schedule 1 Activities to be treated as supply even if made without consideration ... Para 1.Permanent transfer or disposal of business assets where input tax credit has been availed on such assets

Remember gold becomes a business asset on purchase.

In this case if  you claim input credit,  out put tax could be demanded , may be even  at the rate applicable to automobiles !!!

[Sadanand Bulbule]

Also refer Discussion ID No.119371 dated 23/10/2024 for additional information.

[Yash Shah]

According to Section 17(5)(h) of the CGST Act 2017, ITC is blocked with respect to goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

Further, as per Circular No. 92/11/2019-GST, ITC shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without consideration. However, where the activity of distribution of gifts or free samples falls within the scope of 'supply' on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

In the given case, gifts from the company to their agents without consideration do not fall under Schedule I. Therefore, in this case, ITC is blocked u/s 17(5)(h).

AI Summary

Input tax credit on gifts to agents is blocked where distributions are gratuitous, unless treated as a supply under Schedule I.
Input tax credit is not available for goods disposed of by way of gift or free samples where distributions to agents are made without entitlement or consideration; administrative guidance confirms ITC on inputs and capital goods used for such gratuitous gifts is disallowed, unless the distribution is treated as a supply under Schedule I, in which case ITC could be claimed.