TaxTMI 
TaxTMI 
2019 (10) TMI 1388
X X X X Extracts X X X X
X X X X Extracts X X X X
....CE RULING, MAHARASHTRA. BRIEF FACTS OF THE 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 bran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 specified in s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AILURE TO ADHERE TO THE TERMS AND CONDITIONS 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....goods against services or various other permutations and combinations. However, the present transaction by any stretch of imagination 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices Tax Act, 2017 reads as Eligibility and conditions for taking input tax credit and the provision of clause (1) of section 16 ibid. reads thus: 1) "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. 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere is a plethora of jurisprudence which holds that the nomenclature should not decide the contract but the spirit and the intention of the parties should be looked into. 7.3 It is submitted 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 nomenclat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, 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. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venture so as to increase sales or public awareness. Further, the term "furtherance" is defined as the advancement of a scheme or interest. In context of the term "furtherance of business" it means advancement of business of the company. 9.9 The meaning 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reminders cannot be termed as "business assets". The term business asset is defined in general term as a piece of property or equipment purchased exclusively or primarily for business use. There are many different categories of assets including current and non-current, short-term and long-term, operating and capitalized, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 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) a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oval; 11.2 It is submitted that 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. 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vertisement may benefit in equal degree, the manufacturer and dealer. The Hon'ble Court further held in that legitimate business consideration must be kept in mind in adjudicating such matters under Central Excise. 13.5 Thus, the trade promotion activities under scrutiny in the appeal are clearly brand promotion and increasing the volume of sales, and squarely covered by activities relating to business i.e. promotion of the same. 13.6 The Hon'ble Supreme Court in the case of Philips India Ltd. v. Commissioner of Customs and Excise - 1997 (91) E.L.T. 540] = 1997 (2) TMI 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....45/-and Rs. 165/- per moped in respect of different varieties of mopeds sold to the dealers could not be said to be trade discount. Mr. Nariman, Learned Counsel appearing on behalf of the appellants, contended that this Commission allowed to the dealers was clearly trade discount and was, therefore, liable to be deducted in determining the excisable value of the mopeds by reasons of sub-section (b) (ii) of Section 4 of the Act. Now it is true that this amount allowed to the dealers has been referred to in the agreement as commission but the level given by the parties cannot be determinative because it is, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave already submitted that the cost of the brand recollect items like pens, writing pads, paperweights et cetera et cetera which all promote the brand name/proprietary products of the appellants, and have the same embossed on these products, are all included in the price of the medicines being sold to the dealers. Similarly, all the items and the expenditure incurred for the rewards scheme are all built into the price of the medicines sold to the dealers. As held by the Hon'ble High Court of Tripura in the case of Bharti Telemedia Ltd. V. The State of Tripura reported at 2015 -VIL- 227- TRI = 2015 (11) TMI 46 - TRIPURA 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the amount received and for achieving the target under Target Incentive Scheme, we find that the appellant had been given targets for specific quantum of sale by the manufacturers of the cars. As per the agreement, on achievement of such target and in excess of it, appellant was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable under Business Auxiliary Services, we find no substance in the arguments raised by the learned AR as well as the reasoning given by the adjudicating authority. The said amounts are incentive received for achieving the target of sales cannot be treated as Business 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 responde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Departmental representative before them, contending that the supplies have been made free of cost and are non-taxable under section 9 read with section 2 (78) and merits to be treated as an exempt supply under section 2 (47), and that the credit should be disallowed in terms of section 17 (2). However, the Lower authority in the impugned order has not gone by these contentions or by these provisions. It is well settled that an order passed has to be judged on the basis of the reasons given therein without any new reasons not forming a part of the lower authority's order. Reliance is placed in the case of Gem Sanitary Appliances P Ltd. 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 g....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the Appellants gives its products to doctors as free samples for which it does reverse the input tax credit. 14 In light of these facts, the Appellants 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. Respondent's Submissions 15. The Respondent in the present appeal matter maintained their earlier stands, which they had taken before the Advance Ruling Authority while contending to the applicant's interpretation of the subject issues i.e. the admissibility of ITC of the expenses incurred by the applicant for the procurement of the various 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 availab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court has held that a, " 'gift' is a gratuity and an act of generosity and does not require a consideration, if there is a consideration for one transaction, it is not 'gift' The applicant is not signing any formal contract under "Shubh Labh Loyalty Program", hence there is no contractual obligation under which goods are supplied. 15.4 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. 15.5 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 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 cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue 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 merits 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 specifically disallow availment and usage of any credit on goods disposed of by way of 'gift' not withstanding anything whatsoever in sub section (I) 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. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so, 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. 15.18 In any case, the applicant 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 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 therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upply of the goods to its distributors or doctors as brand reminders are without any legal consideration and contractual obligation, and therefore the same would reasonably be construed as gift, and accordingly the ITC in respect of the expenses incurred on the procurement of the said supply of goods or services will not be allowed to the appellant in accordance with the provision of section] of the CGST Act, 2017. 18. On perusal of the above said impugned Advance Ruling order as well as all the written submissions, and the facts of the case, placed before us, the moot issues, to be decided, are as under: 1. Whether input tax credit is available on the GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty program? 2. Whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes goods given as brand reminders? 19. The present application is in respect of a sales promotion scheme known as 'Shubh Labh Loyalty Program 2018 for their wholesalers/distributors and promotional products which has been floated by them for their doctors. In the first case, their distributor/wholesaler customers who ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not a gift as the watch is given under the contractual obligation of the scheme 4) To constitute a gift the property should be transferred voluntarily and not as a result of a contractual obligation 5) Transaction between the appellants and the distributor/wholesaler is not a barter as envisaged under Section 7 of the CGST Act. 21. In this submission also, it is noted that the contention of the appellant suffers from an inherent contradiction in that, on one hand they contend that the giving away of the goods is not a barter as there is no separate service rendered by the recipient in such transactions and on the Other hand they say that the goods are not given as gifts as the goods are given as a part of the contractual obligation. The appellant has also cited the CESTAT judgments in the case of Sharayu Motors (2016 (43) STR 158 = 2015 (11) TMI 229 - CESTAT MUMBAI) and Sai Services Station (2014 (35) STR 625 = 2013 (10) TMI 1155 - CESTAT MUMBAI) wherein it is held that amount received for achieving the target under the Target Incentive Schemes, which the revenue sought to tax under the category of Business Auxiliary Services. cannot be treated as Business Auxi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... said that consideration in the form of increased turnover is received by the appellant? However. the appellant has submitted that such a reasoning is totally wrong and incorrect and relied on the CESTAT judgment in the case of Sharyu Motors V. Commissioner of Service Tax, Mumbai reported at 2016 (43) STR 158 (Tri- Mumbai =2015 (11) TMI 229 - CESTAT MUMBAI) wherein it was held that there is no separate business auxiliary service rendered when due to enhanced achievement of sales targets, incentive amounts are received. Such incentive amounts only amount to trade discount, and there is no further service element involved. there being only one transaction. The relevant portion of the decision reads as follows: As regards the Service Tax liability under the category of Business Auxiliary Services for the amount received and for achieving the target under Target Incentive Scheme, we find that the appellant had been given targets for specific quantum of sale by the manufacturers of the cars. As per the agreement, on achievement of such target and in excess of it, appellant was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable unde....