TaxTMI 
TaxTMI 
2019 (10) TMI 1384
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.... CASE A. Sanofi India Limited (hereinafter referred to as the "Appellant"), in India is engaged in business of sale of pharmaceutical goods and services. The Appellant has its head Office in Mumbai and manufacturing unit at Goa and Ankleshwar. The Appellant also gets its products manufactured through third party manufacturers who manufacture goods on contract manufacturing basis. Further, the Appellant provides taxable services and is registered under GST. B. The Appellant in regular course of business, incurs various marketing and distribution expenses. The said expenses are incurred with a view to promote their brand/products and enhance its sales. Under various schemes, the Appellant distributes different products -among its trade channels as promotional items or brand reminders. Further, the Appellant also offers various promotional schemes such as "Shubh Labh Trade Loyalty Program", etc. C. In case of brand reminders, products like pens, notepad, key chains etc. are distributed to the distributors with their name embossed on it. The brand embossed on these products serve as an advertisement tool and is a brand reminder. Such products act as reminder of the association with ....
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....wards promotional schemes goods given as brand reminders? Answer: Answered in Negative." H. Being aggrieved by the said impugned order, the Appellant is filing this instant appeal on various grounds, which are taken without prejudice to each other. Grounds of the Appeal 1. At the outset, the Appellant submits that the ruling of the Authority is inconsistent with the spirit of the GST Law and without authority of law, and/or otherwise untenable and unsustainable in law and is liable to be set aside, on the following amongst other grounds, which are taken without prejudice to one another. 2. ITC SHOULD BE ALLOWED OF THE GST PAID ON PROCUREMENT OF PROMOTIONAL PRODUCTS WHICH ARE GIVEN TO WHOLESALERS AS BRAND REMINDERS, 2.1 It is submitted that the Authority has erred in holding that since Section 17 (5) of the CGST Act deals with Blocked credits and begins with a non obstante clause, the Appellant can be denied the ITC even if Section 16 (1) allows ITC considering the fact that the goods given by Appellant are not gift. 2.2 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 s....
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....ITIONS 3.1 It is submitted that the Authority erred in holding that Appellant have not submitted any contract/agreement in support of the contention that there is a contractual obligation between the distributor/wholesaler and the Appellant. 3.2 It is submitted that the Authority has erred in stating the aforesaid in as much as the said statement is factually incorrect. The Impugned order proceeds on a flawed finding that the Appellant have not submitted any contract/agreement in support of the contention that there is a contractual obligation between the distributor/wholesaler and the Appellant. 3.3 The Appellant in their Additional submissions had produced, before the Authority, a PPT, which would establish that, in light of the terms and conditions which the distributor/wholesaler accept, a contractual obligation iS created between the Applicants and the distributor/wholesaler which would enable either party to a take recourse to a civil suit or action for specific performance of contract on failure to adhere to the terms and conditions. 3.4 It is submitted that the Appellant in Paragraph 3 (k) and Paragraph 3 (I) of the said additional submissions dated 18.04.2019 demonstra....
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....magination cannot be called a barter and is a pure sale arrangement. As pleaded earlier, the act of giving points which can be redeemed later against articles is nothing but discounts in the line of "buy more, save more" on which input tax credit is available. 3.5.4 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. In fact, 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. 3.5.5 Further the circular dated 7 March 2019 referred below in regard to treatment of sales promotion schemes was not considered in the said ruling as order was issued prior to issuance of circular. 4. THE PROMOTIONAL GOODS GIVEN TO DISTRIBUTORS WHOLESALERS WHO SATISFY CERTAIN CONDITIONS IS NOT ASSURANCE OF GIVING AWAY GIFTS ON THOSE CONDITIONS BEING ACHIEVED BY THE CUSTOMERS. 4.1 It is submitted that the Authorit....
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....ery 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. Clause 2 of the same section imposes the conditions. The said clause starts with a non-obstante clause and amongst the other conditions it also lays that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply. 5.5 It is submitted that relying on Schedule - I to the CGST Act, 2017 which deals with activities to be treated as supply even if made without consideration and Entry Number 2 to Schedule I (2), read with Section 17 (5) (h), the Authority erroneously holds that any goods disposed of, by way of gift are not eligible....
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....d that Hon'ble Apex Court in the matter of Super Poly Fabriks Ltd. versus Commissioner of C. Ex., Punjab 2008 (10) S.T.R. 545 (S.C.) = 2008 (4) TMI 31 - SUPREME COURT held that the purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Reproduced here in below is the relevant paragraph of the said judgment for ready reference: "There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive." 7.4 It is submitted that in Assam Small Scale Ind. Dev. Corp. Ltd, and Ors. v. J.D. Pharmaceuticals and Anr. [2005 (8) SCALE 298 - (2005) 13 SCC 19] = 2005 (10) TMI 494 - SUPREME COURT, on the decisiveness of the nomenclature of the agreement entered into between the State corporation and small-scale industrial unit, opined' "The expressions 'principal' and 'agent' used in a document are not decisive. The nature of tr....
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....y 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. 9.3 It is submitted that borrowing the jurisprudential guidance from the observation of the Hon'ble Supreme Court in the matter of Shakuntala & Ors. Vs. The State of Haryana reported in 1979 3 (SCC) 226 is of much avail. The relevant paragraph of the said judgment is reproduced herein below for ready reference: "It is therefore one of the essential requirements of a gift that it should be made by the donor "without consideration". The word "consideration" has not been defined in the Transfer of Property Act, but we have no doubt that it has been used in that Act in the same sense as in the Indian Contract Act and excludes natural love and affection. If it were to be otherwise, a transfer would really amount to a sale within the meaning of section 54 of the Transfer of Property Act, or to an exchange within the meaning of section 118 for each party will have the rights and be subject to the liabilities of a seller as to what he gives and have the rights and be subject to the liabilities of a buyer as to that which he takes.....
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....ing of supply made in course or furtherance of business given in the FAQ on GST released by CBEC says - No definition or test as to whether the activity is in the course of furtherance of business has been specified under the CGST Act. However, the following 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? 9.10 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. 9.11 It is submitted that the act of giving free supplies is similar to the promotional and advertising activities undertake....
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....zed, and tangible and intangible. Business assets are itemized and valued on the balance sheet, which can be found in the company's annual report. The products such as pens, key chains, etc. are purchased and embossed with company logo so as to distribute to its customers for promotion 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. 10.5 Reference herein can be made to the decision of the Hon'ble first tier tax tribunal in United Kingdom in the case of Marks & Spencer PLC, wherein under an offer M&S was providing "free wine for dine" in 10 pounds. The Tribunal held that when a 'commercial common sense approach' is adopted, the term 'free' was being used jn a marketing sense, but the economic and commercial reality of the offer was that M&S was offering a package of four items for 10 pounds, so the price must be allocated across all four items for VAT purposes. In the example given above, the reward in the form of watch given to the wholesaler is on achieving a particular target as per the scheme and is not without any consideration. Thus, no GST should be levied on the said transactio....
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....ing wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment; (iii) components, spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank, used- 1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or 2) for providing output service; (B) motor vehicle registered in the name of provider of output service for providing taxable service as Specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act; (c) Rule 2 (k) "input" means- i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the f....
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....furtherance of business. 12. TRANSACTION BETWEEN THE APPLICANTS AND THE DISTRIBUTOR/WHOLESALER IS NOT A BARTER AS ENVISAGED UNDER SECTION 7 OF THE CGST ACT 12.1 It is submitted that the Authority has failed to appreciate that 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 is a pure sale transaction, in which the medicines are supplied against payment of money. 12.2 It is submitted that the Authority has failed to appreciate, that a barter would involve trading of goods against goods or goods against services or various other permutations and combinations. Additional Submissions dated 14.10.2019 13.1 The appellants also rely on the definition of Business as set out in section 2 (17) of the CGST which lays down that Business includes "(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to subclause (a); (c) any activity or transaction in the nature....
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....I 120 - SUPREME COURT has held that the Tax Department should keep commercial realities in mind in a situation where the discount offered was sought to be truncated on the ground that the dealers were asked to do advertisement and after sales services. The Hon'ble Supreme Court held that such activities benefit both the dealers by maximizing sales as also the manufacturers and the discount could not be curtailed. Relevant portion of the judgement reads as follows: "It seems to us clear that the advertisement which the deafer was required to make at its own cost benefited in equal degree the appellant and the deafer and that for this reason the cost of such advertisement was borne half and half by the appellant and the dealer. Making a deduction out of the trade discount on this account was, therefore, uncalled for. As to the after sales service that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellant's product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more an....
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....s, for the court to decide whether the amount is trade discount or not, whatever be the name given to it. If we look at the terms of the agreement, it is clear that the agreement was between the appellants and the dealers on principal to principal basis. The clauses of the agreement which we have set out above clearly show beyond doubt that under the agreement, the mopeds were sold by the appellants to the dealers and the dealers did not act as agents of the appellants for the purpose of effecting sales on behalf of the appellants. It is clear from clause 5 (a) of the agreement that the bills in respect of the mopeds delivered to the dealers were to be sent by the appellants through their bankers and it was the responsibility of the dealers to retire the bills for the purpose of taking delivery of the mopeds. Clause 5 (b) of the agreement laid an obligation on the dealers to insure the mopeds against all risks, pilferage, non-delivery and SRCC including breakage from the time the mopeds left the factory or stockyard of the appellants until they arrived at the premises of the dealer and this again would show that the dealers acted as principal to principal in purchasing the mopeds f....
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....URA HIGH COURT there is nothing free in commercial transactions, as follows: - "True is that the petitioner companies have not sold the STBs to the customers. There can however be no manner of doubt that the right to use these goods i.e. the STBs has been transferred to the customers. In today's world, nothing is given free of cost. The Cost of the STB is obviously included in the activation charges and/or monthly subscription Under the TVAT Act, even where payment of the goods is made by way of deferred payment the goods can be subjected to tax. The main issue is whether the contract can be easily divided and the value of the goods can be ascertained with exoctitude." 13.10 The lower authority has also reasoned that there is a barter when under the rewards scheme various goods et cetera/expense borne holidays are given as incentives, and in return the service of increased sales is provided by the dealers. Such a reasoning is totally wrong and incorrect and in fact Circular number 105/24/2019 - GST dated 28/6/2019 had been issued by the Central Board of Indirect Taxes and Customs, New Delhi, with same reasoning was issued. In this circular when additional discount was granted by....
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....ss Auxiliary Services, as incentive are only as trade discount which are extended to the appellant for achieving the targets. We find that this view has been taken by the Tribunal in the case of Sai Service Station (supra). With respect, we reproduce the relevant paragraphs: 14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service. 18. In respect of sales/target incentive, the Revenue wants to tax this activity under the category of business auxiliary service. We have gone through the circular issued by MUL which provides certain incentives in respect of cars sold by the assessee-respondent. These incentives are in the form of trade discount. In these circumstances, we find no infirmity in the adjudicati....
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.... V. Chief Commissioner of Income Tax reported at [2012] 19 taxmann.com 69 = 2012 (3) TMI 78 - DELHI HIGH COURT following the Hon'ble Supreme Court decision in the case of Mohinder Singh Gill reported at [1978] 1 SCC 405 = 1977 (12) TMI 138 - SUPREME COURT, holding as follows: - "We are not inclined to accept the said contention of the respondents for two reasons. Firstly, this is not mentioned in the impugned order passed by the Chief Commissioner of Income Tax dated 07.04.2008. The impugned order has to be read and can be defended on the ground and reasons stated therein Mohinder Singh Gill reported at [1978] 1 SCC 405 = 1977 (12) TMI 138 - SUPREME COURT". 13.13 Without prejudice to this ratio which may kindly be applied by this Hon'ble Forum, the Learned Departmental Representative before this Hon'ble Appellate authority also relied on these provisions claiming that these provisions would disentitle the credit, the Appellants submit that such reliance is misplaced and erroneous for the following reasons. 13.14 Section 7 gives the Scope of "supply". As can be seen section 7 (1) lays down that the expression "supply" under clause (a) covers all forms of supply of goods or servi....
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....ious promotional goods/services for distribution to its wholesalers under the 'Shubh Labh Trade Loyalty Programme', and for procurement of the various articles for further distribution to the distributors/Doctors as brand reminders. The above said submissions of the Jurisdictional Officer, who is the respondent in the present appeal, is being reproduced herein under: 15.1 The Applicants has filed the subject application for advance ruling on the following questions: Whether input tax credit is available on the GST paid on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program". Comments -NO, it is observed that applicant and its group entities are a supplier of Pharmaceutical goods and services. Under "Shub Labh Trade Loyalty Program, the applicant claims that they Offer free Singapore T rip or Raymond Weil Watch as the case may be to their wholesalers on selling a pre-determined quantity of their pharma product and the said pre-determined 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....
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....here should not be any contractual obligation or involvement of consideration. In the instant case the applicant give free goods to wholesalers without any involvement of consideration nor is there any written contractual agreement between the company and the wholesaler. Hence, the same is to be considered as Gift. The loyalty program is given voluntarily by the Company and there is no consideration involved in the transaction. Hence, it falls in the definition of Gift. 15.6 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 CST. Therefore, the value of subject free supply does not merit inclusions in value in terms of Section 15. Further, the subject supply merit as exempt supplies under 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). 15.7 The applicant has contended that subject free supplies have be....
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....re used in furtherance of their business, does not arise. 15.10 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 Schedule-I is applicable to only specified suppliers and the subject gifts by the applicant are not covered by the provisions of Schedule-I. Therefore, the applicant has no occasion to take ITC on the basis of Schedule-I which is irrelevant in their case. 15.11 Applicant themselves agreed that the subject supply cannot be construed as permanent transfer or disposal of the business assets. 15.12 There is no substance in the applicant's contention that pens, notepad, key chains etc. given under their promotional scheme goods given as brand reminders does not merit as Gift because there is no dispute about the fact that even pens, notepad, key chains 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 n....
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....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 is not available even Without application of the provisions of Section 17(5)(h). 15.19 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 nontaxable 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 have 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. 15.20 Furth....
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....ble wholesalers under the Appellant's scheme of the "Shubh Labh Trade Loyalty Program", can be construed as inputs or input services, as envisaged under section 2(59) and section 2(60) of the CGST Act, 2017; (b) Whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the brand Sanofi', which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as inputs, as envisaged under section 2(59) of the CGST Act, 2017; (c) Whether the above said provision of the promotional schemes goods, as specified in the catalogue floated by the Appellant, which are provided to the eligible wholesalers under the Appellant's scheme of the Shubh Labh Trade Loyalty Programme, can be construed as exempt supply under the provision of section 2(47) read with section 2(78) of the CGST Act, 2017; (d) Whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the brand 'Sanofi', which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as exempt supply under the provision of section 2(47) read with section 2(78) of the CGST Act, 2017; (e) Whether the abo....
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....target and getting the proportionate reward points, which, in turn, would fetch them their desired goods and services, specified in the catalogue floated under '"Shubh Labh Trade Loyalty Program". Thus, it is established beyond doubt that this entire model of the promotional scheme, namely "Shubh Labh Trade Loyalty Program" floated by the Appellant, is designed with the sole purpose of the furtherance of their business and is thus purely driven by the commercia intentions. In other words, the goods and services procured by the Appellant from the third party under the "Shubh Labh Trade Loyalty Program" are clearly being used or intended to be used by the Appellant in the course or furtherance of their business. Thus, the conditions stipulated for "input" and "input services" under section 2(59) and section 2(60) ibid. respectively, have been squarely fulfilled and the said goods and services can verily be construed as inputs and input services, as the case may be, 21. Now, we will examine the next moot issue i.e. issue(b), which is whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the brand 'Sanofi', which are given free of cost by the Appellant to its....
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....ubh Labh Trade Loyalty Program" floated by the Appellant. Further, it has been established in para 20 above that the subject goods and services, being provided by the Appellant to the eligible wholesalers under the "Shubh Labh Trade Loyalty Program" are nothing but inputs or input services, as the case may be, which help in the furtherance of their business. Hence, the same cannot be termed as output supply at the same time. Thus, in light of the above findings, the question of these subject goods and services specified under "Shubh Iabh Trade Loyalty Program", being in the nature of exempt supply provided under section 2(47) or even non-taxable supply provided under section 2(78) of the CGST Act, 2017, or otherwise do not arise. 24. Now, similarly we can conclude in respect of the issue (d), which is whether the promotional goods e,g. pen, notepad, key chain, etc., embossed with the brand 'Sanofi', which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as exempt supply under the provision of section 2(47) read with section 2(78) of the CGST Act, 2017. Since, it has been established in para 22 above that the subject goods ....
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....lty Program' subject to the conditions prescribed for claiming the reward points and its redemption thereafter as per the catalogue prescribed by the Appellant under the said subject scheme. However, it is opined that the above premise of the AAR in this regard is misplaced and erroneous, as it has been well settled by the various judicial pronouncements that it is not mandatory for any person or entity to have the written agreement with another person or entity to carry out any transaction. In this regard, we can draw inference from the Hon'ble Supreme Court judgment in the case of the Brij Mohan and others versus Sugra Begum and others (1990) = 1990 (7) TMI 373 - SUPREME COURT, wherein it was inter-alia held as under: "..:...We agree with the contention of the Learned counsel for the appellants to the extent that there is no requirement of law that an agreement or contract of sale of immovable property should only be in writing......." Thus, it is conspicuous from the above supreme court judgment that written agreement or contract is not compulsory for effecting any transaction or deeds. Even the oral agreement can have the requisite legal validity and force if the same can be....
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....under the subject scheme is certainly not an act of generosity, as the Appellant is not giving these goods and services to each and every wholesalers, but only to such participating wholesalers, who have achieved their sales targets and accumulated adequate reward points to fetch such promotional goods and services in terms of the catalogue prescribed by the Appellant. There is presence of the pure commercial intention of the Appellant in the said scheme i.e. to increase their business and sales. 29. In view of the above discussions, it is clearly established that the provision of the promotional goods and services by the Appellant to the eligible wholesalers under the Shubh Labh Trade Loyalty Program is not gift, as the same does not satisfy the essential ingredients of the gift as envisaged by the above cited Hon'ble Supreme Court Judgment. Accordingly, the provision of the section 17(5)(h) of the CGST Act, 2017, which proposes to disallow the ITC on the goods disposed by way of gift, will not be applicable in the transaction under question. 30. Now, we will examine the final issue (f), which is whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the....