Whether the applicant is eligible to claim the GST Input tax credit on the items purchased for furtherance of business?

PJ/Case Law/2019-2020/3592

Surfa Coats India Private Limited KAR/AAR/28/2019-20 dated 12.09.2019
Brief Facts:-The Applicant is engaged in the business of manufacturing decorative paints meant for interiors as well as exterior surfaces and has three manufacturing plants. In the course of business, the Applicant frames various incentive schemes depending on the market conditions such as Painters Schemes, Dealers Incentive Schemes, Gold Schemes, Foreign and Local Trip Schemes etc., to persuade dealers and painters to promote the sale of their paint. The incentives given to the dealers and painters are mostly in kind.
Issue:Whether the applicant is eligible to claim the GST Input tax credit on the items purchased for furtherance of business?
Applicant Contention: -The contention of the Applicant is that the painter plays a vital role in marketing the company’s products and they act as middlemen between the customer and the Company. The Applicant purchases goods to be distributed from GST registered dealers who issue GST input tax invoices; such goods procured are not sold by the Applicant but are provided as gifts/ incentives (without consideration) to dealers and painters on completion of targets. Under the incentive schemes, the Applicant distributes goods such as TVs, refrigerators, washing machines, mixers, wet grinders, watches, mobiles, gold coins, bed sheets, rice bags, t-shirts, raincoats, etc., or also offers foreign and local trips as incentives subject to fulfilment of the terms mentioned in each scheme.
Reasoning of the Judgement and Decision: -The Authority ruled that no ITC would be available in the instant case as mentioned above owing to the restriction provided u/s 17(5)(h) of the Act. The AAR considered that the goods or services are distributed to the dealers and painters as gifts / incentives without receiving any consideration and on a conjoint reading of Section 17(5)(h) of CGST Act and Schedule I, it indicates that if the goods are distributed as a gift, Section 17(5)(h) shall be applicable and accordingly, ITC of the same shall not be allowed. Thus the goods shall not be considered as supply. In this regard, Circular No.92/11 /2019-GST dated March 07, 2019 issued by the CBIC clarifies that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration.
Comment: -Since the issue of ITC in case of promotional schemes has been a matter of dispute and is critical to examine each such schemes framed by businesses to determine the taxability and availability of ITC.As per the GST Law, credit is available for inputs used in the course or furtherance of business which also covers promotional and marketing expenses. This is a natural business practice and requires a re-examine by CBIC on this contentious issue.
Prepared By- CA Kartik Singhvi

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PJ/Case Law/2019-2020/3592

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