GST Rulings

GST ITC on goods/services procured for sales promotion

Assessee is a manufacturer of ghee and other food products. It procured certain goods / services (like televisions, air-coolers, gold coins, trips to Dubai, etc.). Such goods / services were awarded to its customers (viz., retailers) based on target quantity and value of purchases made by them. Hence, there was no consideration for such activities / transactions.

Assessee contended that such procurements are in the course or furtherance of business. Can the assessee avail Input Tax Credit (ITC) on such procurements?

RULING OF THE AUTHORITY FOR ADVANCE RULINGS, TAMIL NADU

Prima facie, the Authority[1] agreed that such procurement of goods / services is in the course or furtherance of business. Yet, it observed that these were in the nature of gifts and were for personal consumption of the awardees (viz., retailers). Hence, considering the non-obstante clause under Section 17(5) of CGST Act, 2017, it ruled that ITC was blocked.

[1] Order No.36/ARA of 2021 dated September 30, 2021

COMMENTS / ANALYSIS

In paragraph 7.6 of the ruling, the Authority itself observed that: "gift means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, ....". The important takeaway of this definition is that gift is voluntary in nature. However, in the instant case, these goods / services are awarded only on achievement of targets (viz., quantity and value of purchases). Therefore, to classify such goods / services as gift appears incorrect.

Section 17(5)(g) ibid restricts ITC on goods / services used for personal consumption. The term "used" in this clause is noteworthy. That is, ITC can be denied only if the goods / services procured are used by the ITC claimant (viz., the assessee in question) for his/its personal consumption. In no manner, the assessee utilises the procured goods / services for its personal consumption (having procured them in the course or furtherance of business). Rather, the goods / services may be used by the awardees for their personal consumption, for which there is no restriction on ITC availment by the assessee. Hence, the denial of ITC citing the reason as being for personal consumption too appears incorrect.

On the other hand, vide clause 1 of Schedule I ibid, permanent transfer or disposal of business assets (on which ITC was claimed) is treated as "supply" even if it is without consideration. However, there is no reference thereto in the ruling. The phrase "business asset" is not defined under GST law. While it would cover goods, what about services? Was it left intentionally or is it a draftsmen error?

Srinivasan V, Advocate

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