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2023 (10) TMI 472
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....TGST Act. 3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- under SGST and Rs. 5,000/- under CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided nor are pending before any authority under any provisions of the CGST/TGST Act' 2017. The application is, therefore, admitted after examining it and the records called for and after hearing the applicant as per section 98(2) of TGST Act' 2017. 4. BRIEF FACTS OF THE CASE: 4.1 The applicant M/s. Orient Cements Limited is into the Manufacturing and Sales of Portland Cements and has submitted this business details in the context of the application as follows: 1. That the Company is engaged in the business of manufacture of Ordinary Portland Cement ('OPC') & Pozzolona Portland Cement (PPC). The Company in its 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. 2. That the ch....
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.... case of "Monthly/Quarterly Quantity Discount Scheme" and "Dealer White Goods Scheme" the benefit provided to the dealer is determined based on the amount credited to the account of the dealer which in turn is based on the quantity and the grade of cement purchased by such dealer. Subsequently, to pass on the benefit of such credit lying the dealer's account, the company distributes gold coins and white goods to such dealers instead of adjusting it against the payment to be received from such dealers or issuing them credit notes. 9. That the Applicant believes that the restriction laid down in Section 17(5)(h) of the Act is applicable only in respect of goods disposed of by way of 'gifts'. In the instant case, the gold coins and white goods distributed to the dealers cannot be regarded as 'gifts' on the dealer is eligible for the gold coins and white goods only to the extent of amount lying as credit to his account and is subjected to the satisfaction of the terms and conditions of the scheme 10. That the applicant also believes that the distribution of gold coins and white goods cannot be regarded as permanent transfer or disposal of business ....
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....e 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, they contended that credit is available for input tax paid on goods which are used for furtherance of business. 3. They further submitted that as per Section 1715)(h) of the Act, "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 of free samples". As per the said provision, credit is not available in respect of goods which are given as gifts and free samples. 4. They submitted that, in case of gold coins and white goods distributed to the dealers, the same are distributed based on the quantity lifted by the dealers and the amount of discount the said dealer is eligible for. This ensures that the dealers are motivated to purchase higher quantity of cement in order to be eligible for the discount and in turn gold coins and white goods. This would result in the enhancement of the sales of the....
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....s cannot be called or held to be legal considerations as understood by law. iii. They 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". Per word "consideration has not been defined in the Transfer of Property Act, but we lame un 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 safe 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 he subject to the liabilities of a buyer as to that which he takes. It is not necessary for us to examine the other modes of transfe....
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....ing 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. a theilly, 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 put motive? ix. That, if promotional items are considered as gift and the ITC on the same is disallowed, tris 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. x. They submitted that based on the above submissions, the applicant shall be allowed to avail the ITC on gold coins and white goods distributed to the dealers as the same are incurred as in the course or furtherance of business and they cannot be regarded as gifts for the reasons mentioned above. 4.5 The applicant further contended that a contractual obligation is....
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.... as supply even if made without a consideration. Thus, it is imperative to understand the term "Business Assets" in order to conclude whether the gold coins and white goods issued to dealers would fall under the said entry. ii. That the term "assets" is defined in various Dictionaries as below: Black Law Dictionary, Ninth Edition "The entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable, and goodwill." Online Merriam Webster Dictionary - "the items on a balance sheet showing the book value of property owned." iii. That the General instructions for preparation of balance sheet and statement of profit and loss of a company are provided under Schedule III of the Companies Act, 2013. Assets therein are divided into non-current and current assets as follows: "Non-current assets (1) (a) Fixed assets (1) Tangible assets (1) Intangible assets (iii) Capital work-in-progress (io) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances ....
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....s the list of activities or transactions to be treated as supply of goods or supply of services. Entry (4) of the said schedule pertains to the "transfer of business assets". Clause (a) of entry (4) provides that "where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, such transfer or disposal is a supply of goods." ix. That it is evident from the aforesaid clause also that only those goods which are items of balance sheet of the company are considered as supply of goods and not all goods for the purpose of clause (a) of entry 4 of Schedule II of the Act x. That the term business asset mentioned under the entry 1 of Schedule-I shall be read with the clause (a) of entry 4 of schedule II, it is evident that the said entry is applicable only in case where goods which are part of the balance sheet are permanently transferred or disposed of. xii. That the entry (1) of schedule I specifically uses the term "business asset" whereas the entry (2) of the Schedule states that "supply of goods or services" or both between relat....
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....get defeated thereby rendering Section 7 redundant. This would lead to a situation where anything and everything issued whether for a consideration or not would be subjected to GST under Sl. No. 1 of the Schedule-1 of the Act, which is not the intention of the GST law. xvii. That based on the above submissions, gold coins and white goods distributed cannot be regarded as "Business Assets" and therefore the distribution of gold coins and white goods to dealers as part of promotional schemes cannot be regarded permanent transfer or disposal of business assets where ITC has been claimed on such assets. D. Gold coins and white goods distributed to dealers as part of the promotional scheme cannot be regarded as supply under section of the act i. That with regards to gold coins and white goods issued to dealers being treated as a supply under Section 7 of the Act, it is pertinent to analyse Section 7 of the Act. ii. That it is evident from the above definition that a transaction can be said to be a supply only if the same has been made or agreed to be made for consideration. Therefore, in the absence of consideration, then supply cannot be said to have been ....
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....and Input Tax Credit (ITC) on the same would not be restricted under the Section 17(5)(h) of the CGST Act, 2017 2. That the applicant's obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material / purchase target during the scheme period would be not regarded as a "permanent transfer or disposal of business assets where ITC has been availed on such assets" and would not be treated as a supply even if made without consideration as stipulated under Sl. No. 1 of the Schedule- I to the CGST Act, 2017 3. That the applicant's obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/purchase target during the scheme period would be not regarded as a supply under Section 7 of the Act; 4.2 Company Background: Applicant M/s. Orient Cement Limited, Established in 1979, Orient Cement was formerly, a part of Orient Paper & Industries. It was demerged in the year 2012 and since then, it has emerged as one of the fastest growing and leading cement manufacturers in India. Orient Cement began cement production in the year 1982 at Devapur in Ad....
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....NGS: The applicant is transferring different Goods to its dealers as incentives for achieving their sales targets. These Goods include Gold Coins or White Goods such as a Microwave, Split Ac etc. The dealer of the applicant also has an option to choose any of the Goods under the incentive Scheme. The applicant has in his contentions treated the above transaction neither as gift nor as supply of Goods. The applicant excludes the transaction from the preview of CGST without configuring the nature of the transaction by arguing as follows: 1. According to the applicant the transfer of movable property is happening under a contract. Therefore it is not voluntary transfer and hence it cannot be treated as a gift. Hence, according to the applicant, there cannot be a restriction of ITC on the purchase made by the applicant under section 17(5) (h) of the CGST Act. 2. To support his argument that transfer of goods by the applicant to his dealer is not a gift, the applicant submits that there is a contractual obligation on his part to transfer the incentive Goods to his dealer once the threshold sales are reached by the dealer and that if such transfer of incentive Goo....
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....rtion to the net points gained by the dealer relatable to the quantity of cement sold by them. c) The Section 7 of the GST Act covers transactions such as "transfer", "barter" and "exchange" of goods or services or both under the expression "supply" if agreed to be made for a consideration by a person in the course or furtherance of business. d) Clause (b) of sub-section (31) of Section 2 states that "consideration" in relation to the supply of goods or services or both includes the monitory value of any act in respect of, in response to, or for the inducement of the supply of goods or services or both. Thus: (i) The monitory value of an act done in response to inducement of goods or services is consideration. (ii) Black's Law Dictionary defines inducement as '[t]he act or process of enticing or persuading another person to take a certain course of action'. e) Seen in light of the above fundamental statutory position the transaction in the case of the applicant is one of supply of goods to his dealers in exchange for consideration. The Consideration is the monitory value of the "act" of attaining a level of business indicted in t....