TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 1305
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...., 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 to promote their brand/ products and enhance its sales. Under various schemes,....
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....ne 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 following, namely: goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples." As per the above provision, credit is not available of goods....
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....tain 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 made without any contractual obligation. If any supply is made under a contractual obligation it cannot be termed as a 'gift'. b. Supply must be made without any consideration in money or mone....
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....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 sales or to create goodwill, the companies carry out various promotional schemes including distributing goods for brand promotion. xvi. The act of giving free supplies is similar to the promotional and advertising activities undertaken by ever....
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....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 sales target and hence, input tax credit on purchase of the said watch should be available to Sanofi. Further, the said expenditure is incurred in furtherance of business so as to increase the sales. xxiv. Regarding the point on disposal or transfer of business asset,....
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.... 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 in respect of the said quantum under any earlier law. ..... b. Rule 2 (a) "capital goods" means:- (A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First S....
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....vices 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 promotion of business. Further, even under Service Tax Law, the cenvat credit was available on purchase of inputs, input services or capital goods which were used for furtherance of business. Thus, the input tax credit of the GST paid on purchase of such promotional items should also be available under the GST regime since the same are for furtherance of business. xxviii. Further, the applicant does reverse the input tax credit wherever it is required....
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....arded 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 61-100 100 100 Platinum 101-300 175 150 Titanium >300 300 200 Combiflam Volume Focus: * Wholesalers will be rewarded additional bonus of 5 points per case on achieving the 2017 monthly base in addition, wholesalers will be rewarded 10 points per case, on registering the growth in Combiflam Cases on quarterly basis. This will be rewarded Once in a Quarter ICY HOT Secondary Focus: Driving Depth and Distribution (Jan May period) * Wholesalers will be eligible to win assured Gift on achieving the Combiflam ICY HOT minimum urchase slab on monthly basis Eligibility Criteria MoM for CFM ICY HOT Second Drive Min monthly coupons Reward(Value/ typ....
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....* 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, Buscogast Injectibles, Soframycin, Combiflam suspension, Seacod and Proctocedyl- Rs. 3000 Value purchase will be eligible for 01 reward coupon III. Reward Coupon Activation * Reward coupon will be termed as "active" only as and when wholesaler by using the unique code' mentioned on the coupon with dedicated Shubh Labh call center via Toll Free number of SMS center * It is solely responsibility of wholesaler to activate reward coupons of Shubh Labh 2018 via Toll Free IVR and SMS center Or Shubh Labh Mobile Application IV. Reward Point accumulation * On activation of one (01) coupon of "Power Brand", 5 base reward points will be credited in wholesalers reward account and confirmed via text/SMS to registered mobile number On activation of one (01) coupon of "Classic Brand", 3 base reward points will be credited in wholesalers reward account and confirmed via text/ SMS to registere....
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....rded * If Qtr 2017 base is Zero ("0"), no bonus will be rewarded and wholesaler will be credited only the base points on each coupon activated * Wholesaler will be able to earn the quarterly bonus even if miss on the monthly base achievement. VII. Dynamic Segmentation * Wholesaler will have the flexibility/ option to Outperform and get upgraded to the next segment. This will be calculated on quarterly performance for each wholesaler. * Upgrade of segment will be done Only to the very next segment irrespective of the Over performance * Similarly, in event of Low performance in a quarter, wholesaler will get downgraded to the segment below. Segment name Range Value Upgraded if Average in Qtr is Up by Downgraded if Qtr average is Down by Blue 5-19 >=30 Silver 20-35 >=50 < 15 Gold 36-60 >= 80 < 30 Diamond 61-100 >=130 < 50 Platinum 101-300 >=360 < 90 Titanium >300 <270 Segment wise benefits will be applicable to every wholesaler basis the segment in which he/she is in. NO additional bonus/ arrear will be credited in case of upgrade and similarly in case of downgrade, no penalty will be charged. VIII. Combo Bonus ....
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....rom the Flying Hub and end there only. * Sanofi does not/ will not take responsibility of arranging or confirming additional package requests even on self pay basis. * Sanofi reserves the right to disqualify/ withdraw the winner from the international trip in case of any hygiene Issues. Only the applicable wholesaler will be allowed to travel on the trips and NO replacement will be entertained in the Lucky draw trips. in case of redemption of Trip, Wholesaler is free to nominate any person to go on the trip. * Wholesaler shall be free not to avail of the program benefit and purchase goods less than the minimum quantity and Company shall be bound to supply such quantity ordered. X. Shubh Labh Corner: Shelf Display * Hiring the Window/ Shelf at wholesale points of Mandi type towns Only. * Wholesaler will have to accept the conditions and give his consent to provide a shelf (selected by sanofi FF) exclusively for sanofi CHC OTC in shop visibility activity. Photo will be uploaded on the Shubh Labh dashboard and the wholesaler will be credited 100 reward points on monthly basis. * Wholesaler point will be selected by the local sanofi FF/CSM basis the customer footfall and t....
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....utor/wholesaler can redeem the points so accumulated by them against the items available in the catalogue. (h) The Applicants humbly submit that it is pertinent here to note that it is completely the choice of the distributor/ wholesaler to choose any item from the catalogue against the points so accumulated by them. (i) The Applicants would like to place on record, one unique aspect of the Shubh Labh Loyalty Scheme, i.e. an Application, which has to be downloaded by the distributor/wholesaler or a login through the Shubh Labh website. A unique login id and a password is generated, only after which the distributor/wholesaler can log-in and redeem the points accumulated. (J) Another unique aspect here is that before logging into the Shubh Labh website/ app, a page of terms and conditions pop up which have to be accepted before they get accesses to the website/app. (k) The Applicants are emphasizing on this to establish that the acceptance of terms and conditions on the website/app creates a contractual obligation between the distributor/wholesaler and the Applicants herein. (L) In fact, the Applicants would like to submit that in light of the terms and conditions which the....
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....ter against articles is nothing but discounts in the line of "buy more, save more" on which input tax credit is available. * It would defeat the very purpose of Section 16(1) of the CGST Act if it is held that where the goods are procured with levy of input tax and are supplied without tax being paid on such output supplies, the scheme of the CGST Act, provides for no input tax, except export. Infact, Section 16(1) specifically provides that ITC would be available on inputs if they are used or intended to be used in furtherance of business. Any interpretation to the contrary would render Section 16(1) of the CGST Act otiose. * Further the circular dated 7 March 2019 referred above in regard to treatment of sales promotion schemes was not considered in the said ruling as order was issued prior to issuance of circular. * In light of these facts, the Applicants humbly submit that they should be entitled to ITC on GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty Programme and goods given as brand reminders." 3 CONTENTION - AS PER THE CONCERNED OFFICER: The submission, as reproduced verbatim, could be seen thus- The applicants above referred appli....
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....given under their Subh Labh Royalty Scheme does not merit as Gift because there is no dispute about the fact that even watches has been given free of cost. The applicant themselves have quoted the judgement of Hon'bIe. 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' 1.2.1 The applicant is not signing any formal contract under Shubh Labh Loyalty Program, hence there is no contractual obligation under which goods are supplied. 1.2.2 In the instant case under Shubh Labh Loyalty Program, gifts like watch or reward points 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. 1.2.3 The applicant themselves have submitted that for anything to be considered as gift, there should not be any contractual obligation or involvement of consideration. In the instant case the applicant give free goods to wholesalers without any involvement o....
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....er promotional goods given as brand reminders, the applicant distribute the products like pens, notepad, key chains etc. to the distributors and doctors. The said products are embossed with Sanofi brand. 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 pens, notepad, key chains etc, 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' not withstanding 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. 2.1 The applicant's reliance on provisions of Schedule-I is totally misplaced because it is not their case that su....
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....tween the company and the distributors and doctors. Hence, the same is to be considered as Gift. 2.2.5 The goods given as brand reminders are given voluntarily by the Company and there is no consideration involved in the transaction. Hence it falls in the definition of Gift. Also it is seen that there is no contractual obligation involved in this situation, as it is completely up to the doctors whether he will prescribe the medicines of the company or not. Doctors are not under any legal obligation to do so. As the consideration is not directly linked with the gift provided to doctors, it is to be considered as gift. 2.3 In any case, the notice is not eligible for ITC in terms of provisions of section 9(1) read with Section 17(2), Section 2(47) and section 2(78), because, there is no dispute that the applicant has made the subject supplies without any consideration on which they have paid any GST. Therefore, the value of subject free supply does not merit inclusions in value in terms of Section 15. Further, the subject supplies merit as exempt 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 i....
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....d expenses by the applicant which would be on the lines thus - The applicant, a registered person under GST ACT is engaged in business of sale of pharmaceutical goods and services through group entities during the course of which they incur various marketing and distribution expenses, with a view to promote their brand/ products and to enhance their sales under various schemes .The applicant distributes different type of products among its trade channels as promotional items or brand reminders. Applicant offers various promotional schemes and following schemes are the subject matter of present application namely: 1) Shubh Labh trade loyalty program and 2) Brand reminders products The Broad nature of the schemes are as below: Shubh Labh trade loyalty program: wherein the distributors/wholesalers get rewards based on the reward points earned by them on the basis of quantity of goods sold by them. Instead of opting to give a cash discount to their distributors/wholesalers, and to make it more lucrative and aesthetically appealing, applicant offers reward points against purchases made by the distributors/ wholesalers. These reward points can be redeemed at the end of each month....
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.... applicant sells their products to their customers who are entitled to get the reward points, on the basis quantity of goods sold by them. Both the schemes are independent of each other. In the first schemes, the products mentioned in the catalogue will be procured from different suppliers, it includes different types of goods and services and since these goods / services are leviable to GST, the applicant has raised the question i.e. whether Input Tax Credit ("ITC") can be claimed by them on procurement of the said products/ services given on above said promotional basis. As per their submissions, the said products are inputs for them and GST levied on such purchase qualifies to be an input tax for the purpose of Section 16(1) read with Section 2(62) of the CGST Act. The jurisdictional officer has also made submissions and has different view point. He has opined that in the instant case under Shubh Labh Loyalty Program, gifts like watch or reward points are given as incentive and there is no extra commercial consideration and since there is no commercial value assigned to the transaction, it is to be construed to be Gift. He further contended that under promotional goods given as....
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....hubh Labh Loyalty Program". The applicant has submitted that the said products procured for the distribution to the wholesalers are inputs for them and GST levied on such purchases qualifies to be an input tax for the purpose of Section 16(1) read with Section 2(62) of the CGST Act. We find that the provisions of ITC are governed by Sections 16 and 17 of the CGST Act, 2017. In order to avail ITC, two basic provisions need to be complied with, i.e. Section 16 and Section 17. As per Section 16, a taxpayer is entitled to take credit of input tax charged on any supply of goods or services to him which are used in the course or furtherance of his business. i.e. this section disallows ITC against input goods/ services used for non-business purposes. Section 17 (5) of the CGST Act deals with Blocked credits and begins with a non obstante clause, which means even if Section 16 (1) allows ITC, Section 17(5) shall block in respect of certain cases. Clause (h) of Section 17(5) read as, "Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or di....
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.... the word 'gift' has an enlarged scope according to us and has its own colour. In all such cases, as in the present case, the statement that promotional goods, in this case, will be given to distributors/ wholesalers who satisfy certain conditions is nothing but assurance of giving away gifts on those conditions being achieved by the customers. At the least we can say that the condition put forth by the applicant to avail or participate in this scheme are nothing but is a measure of particular kind of promotional items meaning thereby that if wholesaler sale more products then he will be eligible for more reward points and further eligible for big offer such as Singapore Trip of 5 D/ 6 Days instead of Raymond Watch. Under the GST laws the intention for non-granting/ denial of setoff is envisaged in situations where there is no tax on output supply. In cases where the goods are procured with levy of input tax and are supplied without tax being paid on such output supplies, the scheme of the GST Act provides no input tax credit, except export. Schedule - I to the CGST Act, 2017 deals with activities to be treated as supply even if made without consideration. As per Entry Number 2 t....
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....eration i.e. free supply and without payment of output tax. The only conclusion therefore, that can be drawn in the present case is that the distribution of promotional articles by the applicant is nothing but gifts and hence the transaction is covered by the provisions of Section 17(5) of the Act. Relying on Circular issued by the Principal Commissioner GST bearing No. 92/11/2019-GST dated 7 March 2019 for clarifying various doubts related to treatment of sales promotion schemes under GST, submits that discounts offered by the Suppliers to Customers (including staggered discount under 'Buy more, save more' scheme and post supply/volume discounts 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. He further submit that as per Circular, 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. A....
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.... Reminder Products like pens, key note pad, key chains etc. are distributed to the distributors and doctors. The said products are embossed with Sanofi Brand. The Brand embossed on this products serve as advertisement and is a brand reminder that promote sales. Further at submission with heading it is stated as - ICY HOT Secondary Focus: Driving Depth and Distribution (Jan May period) * Wholesalers will be eligible to win assured Gift on achieving the Combiflam ICY HOT minimum purchase slab on monthly basis. Further in the submission with heading it is stated as - IX Redemption & Rewards * Redemption in the form of gift items/articles will be ONLY as per the Shubh Labh program catalogue provided to wholesaler. * Sanofi India does not give any warranty/ guarantee in respect of quality or merchantability of the gift articles offered under this program * Gift articles shown in the catalogue are subject to availability and images are for indicative purpose only * 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. From the abov....