2022 (3) TMI 1368 - AAAR - GST

Input Tax Credit - ITC on Gift - GST paid on inputs/input services procured by the appellant 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 - contention is that these goods/services do not fall under 'gift' (Section 17(5)(h)) as the same was not given in volition, but on contractual obligation, on retailers achieving the targeted sales nor these goods/services called as goods/services used for personal consumption - HELD THAT - Section 16 of the CGST Act, 2017 empowers the taxpayer for entitlement of taking the tax charged on the Inputs as input tax credit on the goods or services or both supplied to him which are used or intended to be used in the course or furtherance of his business and such unbridled flow of input tax credit got restriction in section 17 of the Act. The sub-section (5) of the section 17 begin with Non-obstante clause that Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18 and hence the sub-section (5) of section 17 would independently apply and the Parliament consciously restricts the input tax credit which is a concession and not a vested right. The clause (g) forbid the input tax credit for the goods or services used for personal consumption and the Parliament in its wisdom did not place any further restriction as to who use the goods or services or both for personal consumption and it is obvious reason that under the GST law the flow of input tax credit is allowed until its consumption and hence such personal consumption be by the appellant or by its retailers would disentitle them to avail such input tax credit. Hence the plain reading of clause (g) reveals that the goods or services or both used for personal consumption by the appellant or its retailers would make the related input tax credit unavailable for the appellant, as the retailers of the appellant ultimately consumed the goods and services provided under reward scheme and the contention that the clause (g) would be applicable to the stage of procurement use and not on the last use would be of no avail to the appellant In the case at hand, the actual costing which is assessed has not been substantiated to hold the expenses at hand tor which credit is claimed. It is pertinent to note that the appellant has stated that the M.R.P. remained the same both Pre and Post Campaign, which points that the goods and services distributed under the scheme were without valuable consideration - It is interesting to note that the appellant provided rewards by way of goods and also foreign tours by providing valid air tickets and that's why they coined the reward scheme as Buy n Fly . Thus what they provided in the scheme was goods and services. The provisions of the clause (h) stipulates that input tax credit would not be available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. The appellant has referred to the Circular No.92/11/2019 dated 7.3.2019 issued under Section 168 (1) of the Act, and claimed that their situation falls under C. Discounts including 'Buy more, save more offers'. Para 'C' provides clarification in cases when staggered discount is offered to customers; periodic/year ending discounts to stockiest, etc based on the criteria spelt in, whereas in the case at hand, the retailers/stockiest are extended rewards which are definitely not' 'Discounts' discussed in Para C of the circular. The appellants case more aptly falls under Para A of the Circular - It has been established that the giving away of goods/services under the scheme is not a 'Supply' and therefore ITC of the GST paid on the goods/services procured for the 'Buy n Fly Scheme' is not available to the appellant. Thus, as per the provisions of the CGST Act/TNGST Act 2017 more precisely, Section 17 (5) of the Act, the gifts or rewards given without consideration even though they were given for sales promotion do not qualify as inputs for the purposes of Credit, since no GST is paid on its disposal. Therefore, the input tax credit on the inputs and input services involved in the goods and services used for the purpose of reward is not available for the appellant and accordingly the ruling given by the Advance Ruling Authority of Tamil Nadu requires no intervention. The appeal is dismissed.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inputs/input services procured for implementing a promotional scheme.
2. Interpretation of Section 17(5)(g) and (h) of the CGST Act, 2017 regarding personal consumption and gifts.
3. Applicability of previous case laws and circulars under the GST regime.

Detailed Analysis:

Issue 1: Eligibility of ITC on Inputs/Input Services for Promotional Scheme
The appellant, engaged in the manufacture and supply of various products, launched a promotional scheme named 'Buy n Fly' to boost sales. They sought an advance ruling on whether GST paid on inputs/input services for this scheme is eligible for ITC under Section 16 read with Section 17 of the CGST Act, 2017.

The promotional scheme involved rewarding retailers with goods and services such as trips to Dubai, gold vouchers, televisions, and air coolers upon achieving certain sales targets. The appellant argued that these rewards were part of their business promotion expenses and should be eligible for ITC.

Issue 2: Interpretation of Section 17(5)(g) and (h) of the CGST Act
The Advance Ruling Authority (AAR) ruled that the GST paid on inputs/input services for the promotional scheme is not eligible for ITC under Section 17(5)(g) and (h) of the CGST Act, 2017. These sections restrict ITC on goods or services used for personal consumption and goods disposed of by way of gift or free samples.

The appellant contended that the rewards were not gifts given voluntarily but were provided under a contractual obligation upon achieving sales targets. They argued that the rewards should not be classified as gifts and hence should not fall under the restrictions of Section 17(5)(h).

The AAR, however, held that the rewards, being given without consideration, qualify as gifts and thus fall under the restrictions of Section 17(5)(h). Additionally, the AAR found that the goods/services were ultimately consumed by the retailers, making the related ITC unavailable under Section 17(5)(g).

Issue 3: Applicability of Previous Case Laws and Circulars
The appellant cited several case laws from the erstwhile tax regime to support their claim for ITC. They referred to judgments where sales promotion expenses were considered input services eligible for credit.

The AAR noted that these case laws pertained to the previous tax regime and may not directly apply to the GST context. The AAR emphasized that Section 17(5) of the CGST Act starts with a non-obstante clause, making it an overriding provision that restricts ITC on certain items explicitly.

The appellant also referred to Circular No. 92/11/2019-GST, arguing that their case falls under the category of discounts and incentives. However, the AAR found that the circular's provisions on discounts do not apply to the appellant's scheme, which involved rewards rather than discounts.

Conclusion:
The Appellate Authority upheld the AAR's ruling, concluding that the GST paid on inputs/input services for the 'Buy n Fly' promotional scheme is not eligible for ITC. The rewards provided under the scheme were classified as gifts, and the goods/services were deemed to be used for personal consumption by the retailers, falling under the restrictions of Section 17(5)(g) and (h) of the CGST Act, 2017. The appeal was dismissed, and the AAR's decision was affirmed.