The Tamil Nadu Appellate Authority of Advance Ruling( AAAR ) has held that inputs or input services procured for promotional scheme of products is not eligible for Input Tax Credit.
The appellant, M/s GRB Dairy Foods Pvt. Ltd engaged in the business of manufacture and supply of ghee, masalas, instant mixes and sweets. With the objective of expanding the market share the appellant launched a sales promotional offer ‘Buy and Fly’, to enhance the sale of its products. As per the scheme the appellant provides reward article like Dubai Trip, Gold Voucher, Television and Air Cooler for those retailers who achieved the target.
The appellant has sought Advance Ruling on whether the GST paid on inputs or input services procured by the appellant to implement the promotional scheme under the name Buy and Fly is eligible for Input Tax Credit under GST Law. AAR held that such input or input services are not eligible for ITC under GST Law and aggrieved appellant approached AAAR.
The appellant submitted that AAR completely ignored the fact that there was a contractual obligation which was based on a scheme which was circulated to the trade in advance. Once a contractual obligation comes into play the giving of the promotional materials cannot be construed as a gift. The AAR observed that the promotional materials were in the nature of gifts which was given voluntarily and hence would squarely fall under the provisions of section 17(5)(h) and hence credit has to be denied.
The AAAR observed that the appellant provided rewards by way of goods and also foreign tour by providing valid air tickets and that is why they coined the reward scheme as Buy and Fly. Thus what they provided in the scheme was goods and services. The provisions of the clause (h) stipulates that input tax credit would not available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus this clause is exclusively applicable for goods.
The division bench presided by Sri M. V. Choudary, Member (Centre) and Sri K. Phanindra Reddy, Member (State) has held that “as per the provisions of the CGST Act more precisely section 17(5) of the Act, the gifts or rewards given without consideration even though they were given for sales promotion do not qualify as inputs for the purposes of Credit, since no GST is paid on its disposal. Therefore, we hold that the input tax credit on inputs and input services involved in the goods and services used for the purpose of reward is not available for the appellant and accordingly the ruling given by the Advance Ruling Authority of Tamil Nadu requires no intervention and the appeal is dismissed”
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