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2019 (10) TMI 1384 - AAAR - GSTInput Tax Credit (ITC) - expenses incurred towards promotional schemes of Shubh Labh Loyalty Program - expenses incurred towards promotional schemes goods given as brand reminders - Whether the promotional schemes goods, or services as specified in the catalogue floated by the Appellant, which are provided to the eligible wholesalers under the Appellant s scheme of the Shubh Labh Trade Loyalty Program, can be construed as inputs or input services, as envisaged under section 2(59) and section 2(60) of the CGST Act, 2017? - HELD THAT - It is observed from the analysis of the promotional scheme, namely Shubh Labh Trade Loyalty Program , floated by the Appellant, that the subject goods or services, which are certainly not the capital goods for the Appellant s pharmaceutical business, are being given to only such eligible wholesalers, who have garnered adequate reward points required to claim various goods and services/ after achieving specific targets specified in the Shubh Labh Trade Loyalty Program s module floated by the Appellant. Thus, from the above transactions, it is clearly revealed that the said Shubh Labh Trade Loyalty Program module floated by the Appellant is primarily designed for increase in the sale of pharmaceutical products manufactured by them by floating this lucrative schemes for their wholesalers, so that they put in extra effort in selling the Sanofi Pharmaceutical products for achieving the sales target and getting the proportionate reward points, which, in turn, would fetch them their desired goods and services, specified in the catalogue floated under Shubh Labh Trade Loyalty Program - it is established beyond doubt that this entire model of the promotional scheme, namely Shubh Labh Trade Loyalty Program floated by the Appellant, is designed with the sole purpose of the furtherance of their business and is thus purely driven by the commercia intentions. In other words, the goods and services procured by the Appellant from the third party under the Shubh Labh Trade Loyalty Program are clearly being used or intended to be used by the Appellant in the course or furtherance of their business. Thus, the conditions stipulated for input and input services under section 2(59) and section 2(60) ibid. respectively, have been squarely fulfilled and the said goods and services can verily be construed as inputs and input services. Whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the brand Sanofi , which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as inputs, as envisaged under section 2(59) of the CGST Act, 2017? - HELD THAT - On perusal of the submissions made by the Appellant in this regard, we agree with the Appellant s contention that these goods, provided free of cost to their distributors or doctors in their trade channels, are actually being used as an advertisement tools for the promotion of their brand Sanofi as all such goods i.e. pens, notepads, key chains, etc. are embossed with the brand Sanofi , thus making them as potential advertisement tools for their brand, which in turns would help in furtherance of their business. Since, these subject goods, used by the Appellant as brand reminders, helps in the furtherance of business, it can reasonably be concluded that the same are inputs for the Appellant in terms of the provision of section 2(S9) of the CGST Act, 2017. Whether the provision of the promotional schemes goods, or services, as specified in the catalogue floated by the Appellant, to the eligible wholesalers under the Appellant s scheme of the Shubh Labh Trade Loyalty Program , can be construed as exempt supply under the provision of section 2(47) read with section 2(74) of the CGST Act, 2017? - HELD THAT - It is not disputed that Appellant is in the business of the pharmaceutical products, wherein various pharmaceutical products are manufactured either by its own, or with the help of the third-party manufacturers. Therefore, it is clear that the Appellant is certainly not in the business of the supply of the subject goods or services as specified in the catalogue of the Shubh Labh Trade Loyalty Program floated by the Appellant. Further, it has been established that the subject goods and services, being provided by the Appellant to the eligible wholesalers under the Shubh Labh Trade Loyalty Program are nothing but inputs or input services, as the case may be, which help in the furtherance of their business. Hence, the same cannot be termed as output supply at the same time - the question of these subject goods and services specified under Shubh Iabh Trade Loyalty Program , being in the nature of exempt supply provided under section 2(47) or even non-taxable supply provided under section 2(78) of the CGST Act, 2017, or otherwise do not arise. Whether the promotional goods e,g. pen, notepad, key chain, etc., embossed with the brand Sanofi , which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as exempt supply under the provision of section 2(47) read with section 2(78) of the CGST Act, 2017? - HELD THAT - Since, it has been established that the subject goods being provided free of cost by the Appellant to its distributors or doctors as brand reminders are nothing but inputs. Hence, the same cannot be termed as output supply at the same time - the question of the provision of these subject goods embossed with the brand Sanofi , being in the nature of exempt supply under section 2(47) or even non-taxable supply provided under section 2(78) of the CGST Act, 2017, or otherwise do not arise. Whether the above said supply of the promotional schemes goods, or services to the eligible wholesalers under the Appellant s scheme of the Shubh Labh Trade Loyalty Programme can be construed as gift for the determination of the applicability of section of the CGST Act, 2017? - HELD THAT - The written agreement or contract is not compulsory for effecting any transaction or deeds. Even the oral agreement can have the requisite legal validity and force if the same can be established adequately under the circumstances leading to the respective events. In the present case, however, there is a provision of digital agreement, being entered between the Appellant and the participating wholesalers, wherein the said participating wholesalers are allowed to be part of this subject scheme only after accepting the terms and conditions of the Shubh Labh Trade Loyalty Program - it can be clearly made out that the promotional goods and services being given by the Appellant to the eligible participants are not voluntary, but the same is subject to the compliance of the terms and conditions of the scheme under question - the subject goods and services given by the Appellant to the wholesalers under the Shubh Labh Trade Loyalty Program are voluntary is erroneous, and hence not tenable. It is clearly established that the provision of the promotional goods and services by the Appellant to the eligible wholesalers under the Shubh Labh Trade Loyalty Program is not gift, as the same does not satisfy the essential ingredients of the gift - Accordingly, the provision of the section 17(5)(h) of the CGST Act, 2017, which proposes to disallow the ITC on the goods disposed by way of gift, will not be applicable in the transaction under question. Whether the promotional goods e.g. pen, notepad, key chain, etc., embossed with the brand Sanofi , which are given free of cost by the Appellant to its distributors or doctors as brand reminders can be construed as gift for the determination of the applicability of section of the CGST Act, 2017? - HELD THAT - The goods embossed with the Sanofi is clearly distinct from the goods which are not embossed as such. Further, it has already been established that the subject goods, given free of cost to the distributors or doctors as brand reminders are nothing but inputs for the Appellant in terms of the provision of section 2(59) of the CGST Act, 2017, as the same fulfill the advertisement need of the Appellant and its products. Hence, it can reasonably be concluded that these goods are given to the distributors or doctors with a purpose or motive, which is clearly commercial in nature i.e. The appellant is providing these goods to the distributors or doctors with an implicit commercial motive related to the growth in the sale of their products with the aid of their distributors and doctors. Thus, it can be deduced that the act of the Appellant, wherein they supply the subject goods to their distributors or doctors, is anything but generous, and there is certainly an element of the commercial consideration involved into this - the provision of the section 17(5)(h) of the CGST Act, 2017, which proposes to disallow the ITC on the goods disposed by way of gift, will not be applicable in the transaction under question.
Issues Involved:
1. Availability of Input Tax Credit (ITC) on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program". 2. Availability of ITC on expenses incurred towards promotional goods given as brand reminders. Issue-wise Detailed Analysis: 1. Availability of ITC on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program": The Appellant, engaged in the sale of pharmaceutical goods, incurs marketing and distribution expenses to promote their products through various schemes like "Shubh Labh Trade Loyalty Program". This program rewards distributors/wholesalers based on the quantity of goods sold, offering items such as trips and watches. The Appellant claimed ITC on GST paid for these rewards. The Appellate Authority examined whether these promotional goods/services qualify as "inputs" or "input services" under sections 2(59) and 2(60) of the CGST Act, 2017. It was determined that the promotional scheme is designed to increase sales and further the business. Therefore, the goods/services procured under this scheme are used in the course or furtherance of business, fulfilling the conditions of "inputs" and "input services". The Authority also addressed whether these promotional goods/services could be considered exempt supplies under sections 2(47) and 2(78) of the CGST Act. It concluded that since these goods/services are inputs used to further the business, they are not output supplies and thus not exempt supplies. Regarding the classification of these promotional goods/services as gifts under section 17(5)(h) of the CGST Act, the Authority noted that the transactions under the "Shubh Labh Trade Loyalty Program" involve an indirect consideration through increased sales, thus not qualifying as gifts. Consequently, ITC on these goods/services should not be disallowed. 2. Availability of ITC on expenses incurred towards promotional goods given as brand reminders: The Appellant also distributes promotional items like pens, notepads, and key chains embossed with their brand to distributors and doctors. The Authority examined whether these items qualify as "inputs" under section 2(59) of the CGST Act. It was determined that these items serve as advertisement tools to promote the brand and further the business, thus qualifying as inputs. The Authority also addressed whether these promotional items could be considered exempt supplies under sections 2(47) and 2(78) of the CGST Act. Similar to the previous issue, it concluded that since these items are inputs used to further the business, they are not output supplies and thus not exempt supplies. Regarding the classification of these promotional items as gifts under section 17(5)(h) of the CGST Act, the Authority noted that these items are provided with a commercial motive to promote the brand and increase sales. Therefore, they do not qualify as gifts, and ITC on these items should not be disallowed. Conclusion: The Appellate Authority concluded that ITC is available on the GST paid on expenses incurred towards both the promotional schemes of "Shubh Labh Loyalty Program" and the promotional goods given as brand reminders. The previous ruling, which disallowed ITC on these expenses, was set aside. Order: 1. ITC is available on the GST paid on expenses incurred towards promotional schemes of "Shubh Labh Loyalty Program". 2. ITC is available on the GST paid on expenses incurred towards promotional goods given as brand reminders.
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