TaxTMI 
TaxTMI 
2019 (6) TMI 1305
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....t are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 02 FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus" "3.1 Statement of relevant facts having a bearing on the question(s) raised Facts of the Case : a. Sanofi India Limited ("Sanofi" or "We" or "the Company" or "the Applicant"), in India is engaged in business of sale of pharmaceutical goods and services through group entities. Sanofi has its head office in Mumbai and manufacturing unit at Goa and Ankleshwar. Sanofi also gets its products manufactured through Third party manufacturers who manufacture goods on Contract manufacturing basis. Further Sanofi provides taxable services and is registered under GST. b. Sanofi in its business operations incurs various marketing and distribution expenses. The expenses said expenses are incurred with a view t....
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....e of products as mentioned above, following are key provisions from CGST Act, 2017 which are significant to determine the eligibility of the credit - • Section 2(59) of CGST Act, 2017 - "input" means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business • Section 2(60) of CGST Act, 2017 - input service" means any service used or intended to be used by a supplier in the course or furtherance of business • As per Section 16(1) of the said Act - " Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person" Thus, credit is available of input tax paid on goods which are used for furtherance of business. • However, as per Section 17(5)(h) of the CGST Act, 2017, "input tax credit shall not be available in respect of the follow....
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....nd does not require a consideration; if there is a consideration for the transaction, it is not a gift. In the same case, it was also held that a gift is a transfer which does not contain any element of consideration In any shape and form - Love, affection, spiritual benefit and many other factors may enter in the intention of the donor to make a gift but these filial considerations cannot be called or held to be legal considerations as understood by law. vii. The Australian High Court in the case of Commissioner of Taxation (Cth) v. McPhaiI [1968] 41 ALJR 346 held that to constitute a 'gift' the property should be transferred voluntarily and not as a result of a contractual obligation. In this case a person agreed to give a donation to a school in return of school charging less fees for the education of the child of said person. Hence, the Court held that such donation cannot be termed as 'gift' as it was made under a contractual obligation wherein school was required to charge lower fees against the donation made. viii. ln light of the above, one can reasonably conclude that to constitute a "gift" following elements are required to be satisfied:- a. Supply must be ....
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....lowing business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business: a. Is the activity, a serious undertaking earnestly pursued? b. Is the activity, pursued with reasonable or recognizable continuity? c. Is the activity, conducted in a regular manner based on sound and recognized business principles? d. Is the activity, predominantly concerned with the making of taxable supply for consideration/ profit motive? xiv. Accordingly, when the inputs and/ or input services are said to be used in furtherance of business, the use of such supplies should help in achieving the objectives of the business in a better and effective way, thus corresponding credit is allowed. In the present case, the brand reminders are given to wholesalers with an intention to increase sales of the Company and thus given for promoting the brand and advancement of the business which is the primary objective. xv. It is pertinent to note that, if promotional items are considered as gift and the ITC on the same is disallowed, this will have a huge impact across the businesses because in order to promote s....
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....omotion purpose which can be said as incurring business expenses. The same can in no way be said to be permanent disposal or transfer of business assets. xxi. Further, in case of Shubh Labh Loyalty program, as mentioned above, the distributors/ wholesaler get promotional items based on the reward points earned on the basis of goods sold by them. Thus, they have earned such reward points on the basis of the target achieved by them. xxii. In the example provided above, the wholesaler who has earned 24000 points will be eligible for claiming Raymond Weil 2760-St3-50001 Watch -For Men. The said points are earned on the basis of quantity of the Sanofi products sold by the wholesaler. Thus, the rewards in the form of watch given to the wholesaler is on achieving a particular target as per the scheme and is not in the nature of gift. Infact, the wholesaler has earned the said watch on the basis of the sales target achieved. xxiii. Based on the above, it can be concluded that in case of the Shubh Labh Scheme, the watch given to the wholesaler is not a gift as the watch is given under the contractual obligation under the scheme. It is the consideration for achieving a particular sa....
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....ant dealer") the Commissioner shall subject to the provisions of rules 53, 54, 55 and 55B in respect of the purchases of goods made by the claimant dealer on or after the appointed day, grant him a set-off of the aggregate of the following sums, that is to say, - (a) the sum collected separately from the claimant dealer by the other registered dealer by way of tax on the purchases made by the claimant dealer from the said registered dealer of goods being capital assets and goods the purchases of which are debited to the profit and loss account or, as the case may be, the trading account, (b) tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Motor Vehicles into Local Areas Act, 1987, and (e) the tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2003. (d) the purchase tax paid by the claimant dealer under this Act. 2) The set-off under this rule shall not be granted in regard to any quantum of tax if set-off under rule 51 has been claimed in respect of the same quantum of tax or if set-off has been claimed....
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....onstruction of factory shed, building or laying Of foundation or making of structures for support of capital goods; d. Rule 2 (l) "input service" means any service.- (i) used by a provider of taxable service for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, Inward transportation of inputs or capital goods and outward transportation upto the place of removal; xxvii. Based on above, the applicant contends even in the erstwhile regime, there was no such restriction on availment of VAT credit on purchases made for pro....
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....Brand coupon, wholesaler will be credited with FIVE (05) reward points and confirmed via text/ SMS to registered mobile number • on activation of one (01) CLASSIC Brand coupon, wholesaler will be credited with THREE (03) reward points and confirmed via text/ SMS to registered mobile number Combo Points: • Additional bonus on purchase of minimum 3 types of coupons in a calendar month will be rewarded to the wholesaler account on the 1st day of the subsequent month, • 10 bonus points will be rewarded to Blue, Silver & Gold. And 20 bonus points will be rewarded to the diamond, platinum and titanium segment • WS will have to active minimum 3 coupons from Allegra, Power, Combiflam Tab and Icy Hot SEGMENT BOUNDARY Bonus: Quarterly Additional Bonus will be rewarded every Quarter to the wholesalers who will maintain the Segment boundary average for each quarter Segment Name Value Range Segment Boundary Quarterly Bonus Blue 5-19 15 30 Silver 20-35 35 50 Gold 36-60 60 75 Diamond 61-100 100 ....
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....e orders • Company reserves the right to modify/ discontinue the program at its own discretion • Number of coupons permitted to be activated in Dec 2018 will remain same/ equals to the average number of coupons registered during Jan-Nov 2018, for each of the portfolio type • Sanofi reserves the right to disqualify the registered wholesaler or withdraw the benefits in eventuality of involvement in any trade hygiene disturbance in the market/s • Quarter Definition for each activity will be Jan-Mar, Apr-Jun, Jul-Sep & Oct-Dec II Portfolio applicability • Combiflam Tablet purchase in minimum quantity of 01 shipper/case or 14,040 tablets will be eligible for 01 reward coupon • Allegra & Enterogermina purchase value of Rs. 3000 will be eligible for 01 reward coupon (MT coupon) • Combiflam ICY HOT Gel/ spray purchase value of Rs. 3000 will be eligible for 01 reward coupon (ICYHOT coupon) • Power Brands- Avil Tablee;, Dulcoflex, Buscogast, NU range, Buscogast Tab and festal Rs. 3000 Value purchase will be eligible for 01 reward coupon • Classic Brands- Avil Injectibles, B....
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.... 200 800 Platinum 150 150 150 150 600 Diamond 100 100 100 100 400 Gold 75 75 75 75 300 Silver 50 50 50 50 200 Blue 30 30 30 30 120 Any quarter where wholesaler does not activate Reward coupons OR fails to maintain the average value in a quarter and do not qualify for "segment boundary line" additional reward points, will automatically DOES NOT earn Segment boundary based reward points VI. Combiflam Volume Bonus: • On achievement of SL 2017 monthly base of coupon volume for Combiflam tab, wholesaler will be eligible to earn 05 Bonus reward point every month. If Base is ZERO ("0"), No Bonus will be rewarded and Only Base points for each coupon activated will be credited to the account of wholesaler • WS will be eligible to earn additional 10 (Ten) reward points per Combiflam case purchased in a quarter, If he/she registers growth over 2017 Qtrly base. (Qtr 2018 purchase > Qtr 2017 purchase), in terms of Coupon activation of Combiflam brand, 10 points per case will be rewarded • If Qtr 2017 base is Zero ("0"), no bonus will be rewarded and wholesale....
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....nly • Redemption will be conducted only in the form of gift items listed on the catalogue and NO form/ type/ kind of conversion into cash or cash equivalent will be permitted unless deemed fit by sanofi. • Reward coupons to be collected Only from Sanofi representatives. • As per the catalogue both International/ Domestic trip will be held basis- (a) Passport will be individual wholesalers responsibility (b) Sanofi does not/ will not arrange for local transportation till the airport (c) For both International and Domestic trips, sanofi will provide only economy class air tickets/ 2nd ac train tickets (d) Both International/ domestic tour packages will not include excess luggage/ laundry/ ISD/ STD Calls/ Individual personal expenses (e) Both Domestic/ International tour will be held only basis below mentioned periods- Option 1 : March- April 2017, Option 2: July-Aug 2017, Option 3: Sep-Oct 2017 Option 4: Feb-March 2018. (f) International trips will be arrange from the select HUBs only and NO travel cost will be given to reach the flying hub. Hubs will be Delhi/ Mumbai/ Kolkata/ Chennai. ....
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....ar dated 7 March 2019 is attached herewith as Annexure '1'. (b) Under the said Circular Part 'C' deals with Buy more, save more offers. It has been clarified in the Circular that discounts offered by the Suppliers to Customers (including staggered discount under Buy more, save more' scheme and post supply/volume established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of Section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document(s) issued by supplier. (c) It is clarified in the Circular, that the supplier is entitled to avail the ITC for such input, input services and capital goods used in relation to the supply of goods or services or both on such discounts. (d) The Applicants submit that the Shubh Labh Loyalty Scheme run by them as an incentive to their distributors/wholesalers is on similar if not identical lines. (e) Instead of opting to give a cash discount to their distributors/wholesalers, the Applicants to make it more lucrative and aesthetically ....
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....ST Act, 2017. (n) The Applicants further submit that the recent decision of the Maharashtra Authority for Advance Ruling in the case of Biostadt India Limited dated 20 December 2018 = 2019 (3) TMI 540 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA would not have any bearings in the present application for the following reasons: • In the judgment of Biostadt India Limited the AAR held that the Applicant therein failed to submit any documentation to prove that there was a contractual obligation. (in the present facts, the Applicants have reproduced in their application the entire terms and conditions, which the distributor/ wholesaler has to accept as a pre-requisite before redeeming their points) In the judgment of Biostadt India Limited there were only gold coins on offer on purchase of certain quantity of seeds (in the present facts, the choice lies with the distributor/ wholesaler to redeem the points garnered by him against articles of his choice) • The transaction between the Applicants and the distributor/ wholesaler is not a barter as envisaged under Section 7 of the CGST Act. The transaction of buying medicines by the distributor/ wholesaler i....
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....ined quantity of their pharma product and the said predetermined quantity is accounted for by way of reward points. In this way, there is not dispute about the fact that applicant do not charge any price or value for the said free supply in terms of free Singapore Trip or Raymond Weil Watch as the case may be. Therefore, the said free supply is not taxable and chargeable to any GST in terms of Section 9 of the CGST Act, 2017. The said supply merit as "exempt supply' in terms of provisions of Section 2(47) read with Section 2(78) and therefore, any ITC is not available on the same in terms of inter-alia provisions of Section 17(2) of the CGST Act, 2017. Further provisions of Section 17(5)(h) specifically disallow availment and usage of any credit on goods disposed of by way of 'gift' notwithstanding anything whatsoever in sub section (1) of Section (16). Therefore, the question of availment of ITC, on the basis that subject gift were used in furtherance of their business, does not arise. 1.1 The applicant's reliance on provisions of Schedule-I is totally misplaced because it is not their case that subject gift are covered by Schedule-I of the CGST Act, 2017. It may be seen that S....
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....mpt supplies of Section 2(47) and hence, the ITC is not available to applicant in terms of Section 17(2). Therefore, it may be seen that ITC is not available even without application of the provisions of Section 17(5)(h). 1.4 The applicant has contended that subject free supplies have been made in pursuance of their business. However, the fact remains that the same have been made free of cost and therefore, the same are non-taxable under Section 9 read with Section 2(78) and merits exempted supply under Section 2(47). Further, there is no provisions under Section 15 to include the cost of such free supplies in the value of taxable free samples in terms Section 15. There cannot be any dispute that the said supplies are exempted, hence credit is not allowed in terms of Section 17(2), Further, gifts has to be disallowed In terms of Section 17(5)(h) notwithstanding the fact that the subject supply has been used in course of furtherance of business in terms of Section 16(1). The provisions of Section 17(5)(h) are applicable notwithstanding the provisions of Section 16(1). Therefore, the applicant is not eligible for the ITC. 1.5 Further, the applicant has not provided any enclosur....
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....ins etc. has been given 'free of cost. The applicant themselves have quoted the judgement of Hon'ble Supreme Court in case of Sonia Bhatia Vs. State of UP (1981(3) TMI 250 - Supreme Court], wherein Hon'ble Supreme Court has held that a "gift is a gratuity and an act of generosity and does not require a consideration, it there is a consideration for one transaction, it is not gift. 2.2.1 The applicant is not signing any formal contract under promotional goods given as brand reminders, hence there is no contractual obligation under which goods are supplied. 2.2.2 In the instant case under promotional goods given as brand reminders, products like pens, notepad, key chains etc. are distributed to the distributors and doctors. The said products are embossed with Sanofi brand are given as incentive and there is no extra commercial consideration and hence, since there is no commercial value assigned to the transaction, it is to be construed to be Gift. 2.2.3 Also it is seen that there is no contractual obligation involved in this situation, as it is completely up to the distributors and doctors whether he will prescribe the medicines of the company or not. Doctors are not under a....
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....thstanding the fact that the subject supply has been used in course of furtherance of business in terms of Section 16(1). The provisions of Section 17(5) (h) are applicable notwithstanding the provisions of Section 16(1). Therefore, the applicant is not eligible for the ITC. 2.5 Further, the applicant has not provided any enclosures to their application including Annexure-III containing the sample invoices for procurement of such products distributed as brand reminders. Therefore, the department reserves the rights to be provided with all the documents and file additional reply. 3. The Additional requirements as per annexure are marked as Exhibit A to the submission. PRAYER Considering the facts discussed in forgoing paras it is humbly prayed that the application filed by the applicants may not be allowed. 04. HEARING The Preliminary hearing in the matter was held on 26.022019, Sh. Deshmukh Advocate for Advaita Legal, appeared and requested for admission of application as per contentions made in their application. Jurisdictional Officer Sh. Mohan Raut, Supdt., appeared. The application was admitted and called for final hearing on 09.04.2019, Sh. Deshmukh Advoca....
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.... course of business or furtherance of business as aforesaid. In this view applicant is asking availability of ITC paid on the goods or services procured and used for the promotional scheme, Therefore, they is seeking clarifications answers on the following questions are as below: Question 1. Whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty Program? Question: - 2. Whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes goods given as brand reminders? Since both the question involved common point of determination, hence taken together for decision in this proceeding as below: We find that the applicant is mainly dealing and supplying of Pharmaceutical goods and services and in order to achieve sales and marketing objectives, they have launched various target based - sales incentive schemes for their distributors/ wholesalers to achieve a specified target and in turn helps the company to achieve their targets. The present subject application is in respect of a sales promotion scheme known as "Shubh Labh Loyalty Program 2018" and promotional....
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....be treated as exempt supply under Section 2(47). Further, there are no provisions under Section 15 to include the cost of such free supplies in the value of taxable free samples. There cannot be any dispute that the said supplies are exempted, hence credit is not allowable in terms of Section 17(2). Further, gifts has to be disallowed in terms of Section 17(5)(h), notwithstanding the fact that the subject supply has been used in course of furtherance of business in terms of Section 16(1). The provisions of Section 17(5) (h) are applicable notwithstanding the provisions of Section 16(1). Therefore, the applicant is not eligible for the ITC as the promotional products/ services to be distributed as mentioned above, are not inputs and hence, GST paid on such a purchase does not qualify to be an input tax for the purpose of Section 16(1) read with Section 2(62) of the CGST Act 2017. He further found that the products are not inputs because the said Distribution of different products are not in line with the basic business model, the same products are not essential for continuity in supply and the distribution of products are not concerned with the making of taxable supply for considera....
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....herein if he purchases certain amount of company's product and uploads details of information by customer login on the companies prepared software on the website wherein specific terms and conditions are mentioned for the participation in the Subha Labha Loyalty scheme, then he will be said to have accepted the terms and conditions and is entitled to a promotional products on the basis of reward points attributed on monthly/quarterly/ yearly basis. A contractual arrangement implies especially in view of the magnitude and area of the applicant's business that, it should also be agreed by the customer in writing to such scheme floated by the applicant. We find that they have not submitted any such contract/ agreement and in support of their contention, but they have only submitted a scheme of Shubh labh Loyalty is available on companies web site and interested customers can Login with details to avail the benefit of scheme from 2018 to Jan, 2019. Hence we find that the promotional products are not given to their customers under any contractual obligation and are voluntarily given on certain conditions achieved by their customers. In the present scenario we will try to understand t....
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....t to the extent of fifty thousand rupees in a financial year, when given by an employer to its employee. Further under Section 17(5), no ITC on any goods can be availed, if they are given as gifts, whether or not in course of furtherance of business. As a corollary if it is considered that gifts have some commercial consideration, then GST shall be paid at the time of giving away of disposal of the same and in such cases only ITC will be available. A "gift" is normally seen as an enticement to customers as in the subject case which would bear heavily on the customers in making purchase of particular quantities and above or in making payments of certain values and above. This act on behalf of the applicant if it is not excluded from the scope of being a supply, then the provisions of the Valuation Rules come into play. In other words if the giver of the gift does not pay output tax on the same then the compensation to the department would be the foregoing of the ITC on such gifts. We now deal with one of the contention of the applicant that they have a contractual arrangement with the customer wherein if the distributor purchases certain amount of quantity of company's product....
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.... customers. He has given the reward points on the quantity of goods purchased by the distributors/ wholesalers and not on value of the goods. Against certain accumulated of reward points, applicant has supplied the promotional products, listed as per the catalogue. Scheme explained by the circular and subject matter the present scheme we do not find similarity of facts and as such the said circular is of no help to the applicant. To sum up ITC on "gifts" will not be available when no GST is being paid on their disposal. Just because the applicant submits that they have satisfied Section 16 (1) of the CGST Act 2017 does not mean that they are entitled to credit since Section 17(5) starts with "Notwithstanding anything contained in sub-section (1) of Section 16........." The implication is that in the subject case even if it seems, as per the applicant, that Section 16 (1) is applicable in their case and allows them credit, Section 17(5) shall block such credits, Even though we have come to a conclusion that Input Tax Credit is not available for the expense incurred towards promotional schemes such as Shubh Lakh Loyalty Program and Brand Reminder Products, we find paradox in th....