2019 (4) TMI 111 - AAR - GST

Liability of GST - goods provided free of cost by the Distributors of M/s. PoIy Cab Wires Private Limited to KSEB for reinstating connectivity in flood ridden areas - Input tax credit - Applicability of Sec. 17(5) of CGST Act, 2018 on CSR expenses - Held that - In this case after availing input tax credit, the applicant disposed goods as free supply for CSR activities, Hence, the applicant is liable to reverse the input tax credit already availed. However the petitioner is pointed out that with regard to billing of free of cost materials, distributors issued tax invoices showing sale value, GST and total amount with 100% discount and pay the GST liability to Government In such scenario, input tax credit can be availed only if, the output tax liability towards the outward supply was remitted to the Government. The applicant instructed its distributors to provide the goods at free of cost to Kerala State Electricity Board for flood renovation work- The distributors billed the goods to Kerala State Electricity Board and paid GST to Government. In the invoice so issued, the distributor had valued the goods for the purpose of tax and value was shown as discount. As per Rule 27 of GST Rules where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall be the open market value of such goods, If the open market value is not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply. If the value of supply is not determinable as stated above, the value of supply of goods or service or both of like kind and quality.

Summary

Issues:
1. Determination of GST liability for goods provided free of cost to Kerala State Electricity Board for flood relief.
2. Admissibility of input tax credit for goods provided free of cost in CSR activities.
3. Applicability of Section 17(5) of CGST Act, 2018 on CSR expenses.

Analysis:

1. Determination of GST liability for free goods to KSEB:
The applicant, a dealer in electrical goods, supplied materials free of cost through distributors to Kerala State Electricity Board for flood relief. The distributors invoiced KSEB with sale value, GST, and total amount with a 100% discount, paying the GST liability to the government. As per Rule 27 of GST Rules, the value of supply for goods not wholly in money is determined by the open market value or consideration in money. The distributor, upon instruction from the applicant, provided goods to KSEB, and upon reimbursement from the applicant, would be eligible for input tax credit.

2. Admissibility of input tax credit for CSR activities:
The applicant also distributed electrical items for CSR activities to flood-affected people without collecting money. As per Section 17(5)(h) of the CGST Act, input tax credit is not available for goods disposed of as free samples or gifts. The applicant disposed of goods as free supply for CSR activities, necessitating the reversal of input tax credit already availed.

3. Applicability of Section 17(5) on CSR expenses:
For transactions involving CSR expenses, such as distributing items to flood-affected individuals, input tax credit will not be available as per Section 17(5)(h) of the CGST Act. Goods lost, destroyed, or disposed of as free samples do not qualify for input tax credit under this provision.

In conclusion, the Authority for Advance Rulings, Kerala, determined the GST liability for free goods supplied to KSEB and addressed the admissibility of input tax credit for both the distributor transactions and CSR activities. The ruling clarified the application of relevant GST provisions and highlighted the conditions under which input tax credit can be claimed, providing a comprehensive analysis of the issues raised by the applicant.