ITC not allowed on goods/services procured for distribution of sales promotion rewards for achieving sales target: AAR

Case Details: Authority for Advance Rulings, Tamil Nadu GRB Dairy Foods (P.) Ltd., In re - [2021] 133 taxmann.com 11 (AAR - TAMILNADU)

Judiciary and Counsel Details

• • T.G. Venkatesh and TMT. K. Latha Member

Facts of the Case

The applicant was engaged in the business of manufacture and supply of ghee and other products. It launched sales promotional offer ‘Buy n Fly’ scheme for retailers to enhance sales of its products. It filed an application for advance ruling to determine whether GST paid on inputs/input services such as Trip to Dubai, Gold Vouchers, Television and Air-coolers procured to implement the promotional scheme under the name ‘Buy n Fly’ would be eligible for Input Tax Credit (ITC).

AAR Held

The Authority for Advance Ruling observed that the promotional rewards were extended by the applicant at its own will voluntarily without any consideration in money or money’s worth on achievement of set target to the retailers. The rewards were not in the nature of discounts to the products but were in the nature of personal consumables and therefore, they would qualify to be termed as gifts.

Moreover, Section 17(5) (h) of GST Act, 2017 expressly restricts ITC on such gifts, even if they are procured in the course of furtherance of business. Therefore, it was clear that the tax paid on the goods/services procured for distribution as rewards extended by the applicant in the ‘Buy n Fly’ scheme would not be available as ITC.

Case Review

• • C. Govindarajulu Naidu v. State of Madras AIR 1953 Mad. 116 (para 7.5) followed.

List of Cases Referred to

• • CCE & ST v. Dwarikesh Sugar Industries Ltd. [2017] 50 STR 37 (Trib-All.) (para 2.4)
  • Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130 (Bom.) (para 2.4)
  • CCE v. Dai Ichi Karkaria 1999 112 ELT 353 (SC) (para 2.4)
  • Sonia Bhatia v. State of U.P. [1981] 2 SCC 585 (SC) (para 2.5)
  • Narmadaben Maganlal Thakker v. Pranivandas Maganlal Thakker [1997] 2 SCC 286 (para 2.5)
  • Birla Corpn. Ltd. v. Dy.CIT [2011] 16 taxmann.com 338/[2012] 134 ITD 142 (Kol.) (para 2.5)
  • Federal commissioner Taxation v. McPhail [1968] 117 CLR 111 Australian (para 3.2)
  • Biostadt India Ltd. In re [2019] 103 taxmann.com 127/73 GST 393 (AAR – Maharashtra) (para 4.1)
  • C.Govindarajulu Naidu v. State of Madras AIR 1953 Mad 116 (para 7.5)