2021 (10) TMI 1117 - AAR - GST

Input Tax Credit - inputs/input services procured by the applicant to implement the promotional scheme under the name 'Buy n Fly' - Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017 - HELD THAT - The promotional scheme, 'Buy n Fly' is a scheme launched in the furtherance of business and the goods/services procured as a reward to the scheme are those procured in furtherance of business. The applicant has furnished the Tax Invoice for such purchases and it is seen that, the Invoice is raised on them only. The Prima facie conditions under Section 16 stands fulfilled. Section 17(5) of the GST Act, gives the situations wherein, even when such goods/services are procured for furtherance of business, the tax paid thereon are not available as Input Tax Credit. The said section starts with 'Non obstante clause', 'Notwithstanding anything contained in sub section (1) of section 16', which indicates that the provisions under Section 17(5) prevails over section 16(1) of the Act. Section 17(5)(g) above, restricts the ITC on the goods/services procured for personal consumption, even if those goods/services are procured in the furtherance of business. 'Personal Consumption' is not defined in the GST Law - the claim that the cost of these goods/services are accounted under sales promotion account, the expenses under which are considered to arrive at the cost of the product is immaterial and the argument does not hold, in as much as the credit of taxes paid on the goods/services for personal consumption is explicitly restricted. The fact of who pays for the goods and services here is irrelevant to the usage of the said goods and services. The goods and services are used by the retailers and hence are for personal consumption and the applicant is ineligible to take input tax credit on the inward supply of these goods/services. The input goods/services in the form of Trip to Dubai, Gold voucher, Televisions, Air coolers procured by the applicant for the intended use in furtherance of their business and distributed to the retailers under the 'Buy N Fly' scheme, are goods/services which are in the nature of gifts for personal consumption of the receiver specifically restricted under Section 17(5)(g) of the GST Act - further, the promotional rewards in goods being consumables in nature are gifts extended to the retailers for promoting their products, voluntarily distributed by the applicant without any consideration/ Tax invoice and are in the nature of gifts meant for personal consumption. Hence the input tax credit of the taxes paid on the goods/services procured to be distributed as rewards is not available to them under Section 17(5)(g) read with Section 17(5)(h) of the CGST Act 2017.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inputs/input services procured for a promotional scheme under Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017.

Issue-wise Detailed Analysis:

1. Background and Scheme Details:
The applicant, engaged in the manufacture and supply of ghee and other products, launched a sales promotional scheme named 'Buy n Fly' from 8th April 2019 to 8th July 2019. The scheme aimed to increase sales by rewarding retailers based on their purchase quantities with items such as trips to Dubai, gold vouchers, televisions, and air coolers.

2. Applicant's Argument:
The applicant argued that the promotional scheme was a business activity aimed at increasing sales, thus the inputs and input services procured for the scheme should be eligible for ITC under Section 16 of the CGST Act. They asserted that the rewards were not gifts but part of a contractual obligation to enhance sales, and the cost of these rewards was included in the product pricing, thereby forming a consideration.

3. Legal Provisions and Interpretations:
- Section 16(1) of the CGST Act: Allows ITC on goods/services used in the course or furtherance of business.
- Section 17(5)(g) and (h) of the CGST Act: Restricts ITC on goods/services used for personal consumption and goods disposed of by way of gift or free samples.

4. Jurisdictional Authority's Remarks:
The State Jurisdictional Authority stated that the rewards given without consideration, even for sales promotion, do not qualify as inputs eligible for ITC as per Section 17(5)(h). They cited a similar ruling (Biostadt India Ltd) where ITC was denied for promotional rewards.

5. Analysis by the Authority:
- The promotional items such as air coolers, LED TVs, Dubai trips, and gold vouchers were considered to be for personal consumption by the recipients (retailers).
- The rewards were given voluntarily without consideration, qualifying them as gifts under Section 17(5)(h), thereby blocking the ITC.
- The argument that the cost of rewards was included in the product pricing did not hold as the items were ultimately for personal use and not directly used in the business operations of the applicant.

6. Conclusion:
The Authority concluded that the inputs/input services procured for the 'Buy n Fly' promotional scheme were in the nature of gifts for personal consumption and thus, ITC on these items is not available under Section 17(5)(g) and (h) of the CGST Act, 2017.

Ruling:
The GST paid on inputs/input services procured by the applicant to implement the 'Buy n Fly' promotional scheme is not eligible for Input Tax Credit under Section 17(5)(g) and (h) of the CGST Act, 2017 and TNGST Act, 2017.