2019 (10) TMI 1388 - AAAR - GST

Input Tax Credit - GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty Program - expenses incurred towards promotional schemes goods given as brand reminders. GST paid on expenses incurred towards promotional schemes of Shubh Labh Loyalty Program - HELD THAT - The fact remains that the same have been made free of cost and therefore, the same are non-taxable under Section 9 read with Section 2(78) and merits exempted supply under Section 2(47). Further, there is no provisions under Section 15 to include the cost of such free supplies in the value of taxable free samples in terms of Section 15. There cannot be any dispute that the said supplies are exempted, hence credit is not allowed in terms of Section 17(2). Further, gifts have to be disallowed in terms of Section 17(5)(h) notwithstanding the fact that the subject supply has been used in course of furtherance of business in terms of Section 16(1). The provisions of Section 17(5)(h) are applicable notwithstanding the provisions of Section 16(1). Therefore, the applicant is not eligible for the ITC. Expenses incurred towards promotional schemes goods given as brand reminders - HELD THAT - In the instant case under promotional goods given as brand reminders, products like pens, notepad, key chains etc. are distributed to the distributors and doctors. The said products are embossed with Sanofi brand are given as incentive and there is no extra commercial consideration and hence, since there is no commercial value assigned to the transaction, it is to be construed to be Gift - it is seen that there is no contractual obligation involved in this situation, as it is completely up to the distributors and doctors whether he will prescribe the medicines of the company or not. Doctors are not under any legal obligation to do so. As the consideration is not directly linked with the gift provided to doctor, it is to be considered as gift. The goods given as brand reminders are given voluntarily by the Company and there is no consideration involved in the transaction. Hence it falls in the definition of Gift. Also, it is seen that there is no contractual obligation involved in this situation, as it is completely up to the doctors whether he will prescribe the medicines of the company or not. Doctors are not under any legal obligation to do so. As the consideration is not directly linked with the gift provided to doctors, it is to be considered as gift. The applicant is not eligible for ITC in terms of provisions of section 9(1) read with Section 17(2), Section 2(47) and section 2(78), because, there is no dispute that the applicant has made the subject supplies without any consideration on which they have paid any GST. Therefore, the value of subject free supply does not merit inclusions in value in terms of Section 15. Further, the subject supplies merit as exempt supplies of Section 2(47) and hence, the ITC is not available to applicant in terms of Section 17(2). Therefore, it may be seen that ITC is not available even Without application of the provisions of Section 17(5)(h). The applicant has contended that subject free supplies have been made in pursuance of their business. However, the fact remains that the same have been made free of cost and therefore, the same are nontaxable under Section 9 read with Section 2(78) and merits exempted supply under Section 2(47). Further, there is no provisions under Section 15 to include the cost of such free supplies in the value of taxable free samples in terms Section 15. There cannot be any dispute that the said supplies are exempted, hence credit is not allowed in terms of Section 17(2). Further, gifts have to be disallowed in terms of Section 17(5)(h) notwithstanding the fact that the subject supply has been used in course of furtherance of business in terms of Section 16(1). The provisions of Section 17(5) (h) are applicable notwithstanding the provisions of Section 16(1). Therefore, the applicant is not eligible for the ITC.

Summary

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. ITC on Promotional Schemes of "Shubh Labh Loyalty Program":

The appellant, engaged in the sale of pharmaceutical goods, offers promotional schemes like the "Shubh Labh Loyalty Program" to wholesalers. Under this program, wholesalers earn reward points based on their purchases, which can be redeemed for items like watches or trips. The appellant claimed ITC on GST paid for these promotional items.

The Authority for Advance Ruling (AAR) held that these promotional items are gifts and thus, ITC is not available as per Section 17(5)(h) of the CGST Act, which disallows ITC on goods disposed of by way of gift or free samples. The appellant argued that these items are not gifts but are given under a contractual obligation to promote sales, thus should be eligible for ITC under Section 16(1), which allows ITC on goods used in the course or furtherance of business.

However, the appellate authority noted that there is an inherent contradiction in the appellant's argument. On one hand, the appellant claims that the items are not gifts due to contractual obligations, and on the other hand, they argue that there is no barter or supply of services by the recipient. The appellate authority concluded that since no monetary consideration is received for these items, they are indeed gifts, and ITC is not available as per Section 17(5)(h).

2. ITC on Promotional Goods Given as Brand Reminders:

The appellant also distributes promotional items like pens, notepads, and keychains embossed with their brand to distributors and doctors as brand reminders. The appellant claimed ITC on GST paid for these items, arguing that they are used to promote their brand and hence should be eligible for ITC under Section 16(1).

The AAR ruled that these items are also gifts and thus not eligible for ITC under Section 17(5)(h). The appellant contended that these items are given under a contractual obligation and are not gifts. However, the appellate authority found that since these items are distributed free of cost without any contractual obligation or consideration, they are indeed gifts. Therefore, ITC is not available as per Section 17(5)(h).

Judgment:

The appellate authority had differing views. The Member (SGST) upheld the AAR's order, denying ITC on both promotional schemes and brand reminders. The Member (CGST) set aside the AAR's order in favor of the appellant, allowing ITC. As per Section 101(3) of the CGST Act, due to the differing views, it is deemed that no advance ruling can be issued in respect of the questions under appeal.