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TMI Blog2019 (3) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... in the CGST Act and the Gift-Tax Act (18 of 1858) had defined the word gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money s worth. It is seen from the definition that the transfer i.e the gift given in such a case has to be voluntary - A contractual arrangement implies especially in view of the magnitude and area of the applicant s business that, it should also be agreed by the customer in writing to such scheme floated by the applicant. We find that they have not submitted any such contract/agreement and in support of their contention, as Exhibit A they have only submitted a brochure/writeup/invitation with the heading Kharif Gold Scheme 2018. Hence we find that the gold coins are not given to their customers under any contractual obligation and are voluntarily given on certain conditions achieved by their customers. In the instant case it is seen that the applicant has assigned a value to the gold coins to be given gifts and the value is 3,200/- per gm. They have not explained as to how they have arrived at the value because value of gold changes everyday. Secondly the Scheme announc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LING IS SOUGHT 1. This Application is being filed by M/s. Biostadt India Limited ('the Applicant'/the Company'). The Applicant, having Good and Service Tax (GST) Registration No. 27AACCB1830G123 is inter alia engaged in the business of developing, manufacturing and distributing crop protection chemicals and hybrid seeds. 2. Biostadt India Limited has been serving the farming community for over three decades. The company provides a helping hand to the farmers by providing them with top-of-the-Iine agricultural inputs and services. 3. Over a period of time, the applicant has diversified into a range of seaweed-based biotechnological inputs using fermentation technology, under the well-known brand 'Biozyme'. They also deal in crop protection chemicals - insecticides and pesticides and has made its foray in hybrid seeds market. 4. The manufacturing facilities of the applicant are multi-locational and are very well-equipped with state-of-the-art technology and testing equipment which produce quality products. 5. In order to ensure availability of various products and services, the applicant has extensive network which includes 3 mother depots, 22 stock points and a network of more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward of that leg only. g. A meeting will be called at the end of the scheme period and customers who have satisfied either of the lifting or collection criteria shall be entitled to attend such meeting. h. During the meeting the customer shall be rewarded with the 8gms or 10 gms gold coin depending upon the criteria fulfilled by him. 10. The above mentioned scheme is in force. The applicant will be procuring gold coins from jewelers which are to be distributed at the end of the scheme. As per notification 1/2018 - CGST (Rate) dtd. 28.06.2017, gold is leviable to GST at the rate of 3 percent. 11. The applicant intends to maximize their sales and minimize their outstanding collection through the operation of "Kharif Gold Scheme 2018". Statement of relevant facts having a bearing on the question(s) raised. 1. ISSUE FOR DETERMINATION 1.1. The question or issue before Your Honor for determination is whether Input Tax Credit ("ITC") can be claimed by the applicant on procurement of Gold coins which are to be distributed to the customers at the end of scheme period for achieving the stipulated lifting or payment criteria? 1.2 The question or issue before Your Honor is not restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omotion of business. Any activity carried on with a purpose to achieve business objectives, business principles, business continuity and stability would per se amount to an activity in course or furtherance of business. The applicant has launched Kharif Gold scheme with an intention to maximize the sales and collections of the company. The scheme so implemented grants an advantage to the applicant over other competitors in the market. These schemes ensure brand loyalty and market loyalty which are the important aspects of any business. Hence it would be reasonable to conclude that the scheme launched by the applicant is "in course or further of applicant's business". 2.4. Section 16(2) of the CGST Act provides for conditions which need to be satisfied for claiming ITC on supply of goods or services or both. These conditions are with respect to possession of tax invoice, receipt of goods, payment of tax and filing of returns. The applicant contends that he has satisfied the conditions as laid down in Section 16(2) and is eligible to claim ITC on purchase of gold coins. 2.5. In accordance with the above paras, applicant strongly feels that he is eligible to claim ITC on procureme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can reasonable conclude that gift is a gratuity and does not require any consideration. If a consideration is attached to a transaction, then it cannot be termed as a gift. Emotional consideration such as love, affection, etc. may be attached to a gift but there cannot be a monetary consideration to a gift. It may also be noted that gift cannot arise out of a contractual obligation. If a supply is made under a contractual obligation then it cannot be termed as gift. Supplies made out of non-legal considerations such as love, affection, etc. can only be termed as gifts. 2.11. The applicant has launched a sales promotion scheme. These sales linked scheme are purely for advancement of company's business. It is a known principle that "nothing comes free in business". Each and every act done for business comes with a consideration. Applying same analogy, gold coins are not given away freely to the customers. The applicant has a contractual arrangement with the customer wherein if he purchases certain amount of company's product or makes payment in a prescribed manner then he shall be entitled to a gold coin of specific weight. Gold coin will not be available to the customer unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy; 3. Input Tax Credit (Section 2(63)1: "Input tax credit" means the credit of input tax 4. Registered Person (Section 2(94): "Registered person" means a person who is registered under section 25 but does not include a person having a Unique Identity Number; 5. Eligibility for taking input tax credit (Section 16(1): (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. 6. Conditions for taking input tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and (iv) travel benefits extended to employees on vacation such as leave or home travel concession; (C) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation.- For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; (e) goods or services or both on which tax has been paid under section 10; (f) goods or services or both received by a non-resident taxable person except on goods imported by him; (g) goods or servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(62) of the CGST Act. * Gold coins not given away as gift: --- A Section 17(5) of the CGST Act provides for blocked credits. --- As per section 17(5)(h) registered person is not entitled to claim ITC of tax paid Re g n goods given away as gift or free sample. --- Erstwhile Gift Tax Act defined gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money's worth. --- Honorable Supreme Court cited the definition of 'gift' in the case of Sonia Bhatia v. State of UP [1981 SCR (3) 239, 1981 SCC (2) 585] = 1981 (3) TMI 250 - SUPREME COURT as a voluntary transfer of property by one to another, without any consideration or compensation therefor. A gift' is a gratuity and an act of generosity and does not require a consideration, but there can be none; if there is a consideration for the transaction, it is not a gift. --- It is a settled principle that "Gift cannot arise out of a contractual obligation" and "nothing comes free in business". --- The Australian High Court in the case of commissioner of Taxation (Cth) v. McPhail [1968] 41 ALUR 346 held that to constitute a 'gift' the property shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied to the customer. --- We rely on the judgement of Hon'ble first tier tax tribunal in United Kingdom in the case of Marks & Spencer PLC in support of our contention above. The copy of said judgement is enclosed at Annexure ""B". Hence reading Section 15 in conjunction with Section 2(31) it is abundantly clear that value of coin distributed as per terms of a scheme are not to be included in value of goods. without prejudice to the above submissions, we would place on record that the application has been filed for ruling on allowability of Input Tax Credit and not the valuation. We hereby fervently pray your good office to take cognizance of the above referred submissions and submissions dated 29.08.2018 & 10.09.2018 and accord much awaited justice to law abiding tax payer. 03. CONTENTION - AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- It is submitted that, Issue on which advance ruling is required: Reference Application No:72 Dated 23.08.2018 I. Comments on Annexure-1 of Submission 1. Annexure I contains 'Statement of Relevant Facts Having a Bearing on the Questions on which the Advance Ruling is sought. This office offers n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for continuity in the supply? c. Is the activity' mainly concerned with the making taxable supply for consideration? 7. Therefore, if some supply is either used exclusively in the course/furtherance of business or partly used in the course/ furtherance of business, the basic provision enabling the claim of credit does not contain any restrictions. The restriction would apply only in cases where the supply is not to be used exclusively in the course or furtherance of business: 8. From the above it is clear that the gold coins on which assessee wants to avail ITC credit is not exclusively used during the course of furtherance of business as the assessee's business is exclusively related to manufacture and distribution of crop protection chemicals and hybrid seeds 'Gold coins' to be distributed to customers of M/s Biostadt India Limited at the end of the Kharif Gold Scheme described in Annexure: 1 of their submission are not inputs because: a. Distribution of gold coins is not in line with the basic business model. b. The gold coins are not essential for continuity in supply. c. The distribution of gold coins are not concerned with the making of taxable supply for considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered then as 'discount'/ 'hidden discount and the said discount satisfies the conditions under Section 15(3), i.e. the discount (whether in full or in part) arises and is recorded as a contractual obligation under specific invoice(s), TC shall be available on such goods. It may be worthwhile to show such goods under the respective invoice/credit note after establishing on record, the agreement under which it arises. As soon as an obligation is attached, the commodity loses its identity as a "gift" and no denial of ITC can arise under Section 17(5) in such case: 5. If it is so opined that the said gifts have an extra commercial consideration, then they shall be subjected to GST when given away or disposed off. In this case, ITC of the same shall also be available, because as soon as a commercial value is assigned to any transaction, it shall not remain a gift anymore. However, in this case, the value shall be required to be assigned in compliance with Section 15 read with the Valuation Rules and not hypothetically. GST payable on the supply should take into consideration this adjusted value. 6. In case the gold coins are treated as gift, the input Tax Credit is blocked as per Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions. 05. OBSERVATIONS We have gone through the facts of the case. The issue put before us is in respect of a future transaction which would be on the lines thus - The applicant is engaged in the business of developing, manufacturing and distributing crop protection chemicals and hybrid seeds and in order to achieve sales and marketing objectives, they have launched various target based - sales incentive schemes for their distributors and retailers (customers) to achieve a specified target and in turn helps the company to achieve their targets. The subject application is in respect of a sales promotion scheme known as "Kharif Gold Scheme 2018", which has been floated by them for their customers and is of two types. In the first case, their Customers who purchased certain products on or above a certain quantity would be entitled to one 10 grams Gold coin. In the second scenario, their customers who, after lifting the products from the applicant, made certain minimum payments and above would be entitled to one 8 grams Gold coin. Both the schemes were to be independent of each other. For both the schemes gold coins will be procured from jewelers and since gold is leviable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h ITC on gifts and as per Section 17(5)(h), "Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. We will therefore first discuss whether the gold coins in the subject case can be treated as a gift or not. The word 'gift' has not been defined in the CGST Act and the Gift-Tax Act (18 of 1858) had defined the word gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money's worth. It is seen from the definition that the transfer i.e the gift given in such a case has to be voluntary. The applicant has submitted that they have a contractual arrangement with the customer wherein if he purchases certain amount of company's product or makes payment in a prescribed manner then he shall be entitled to a gold coin of specific weight. A contractual arrangement implies especially in view of the magnitude and area of the applicant's business that, it should also be agreed by the customer in writing to such scheme f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or distinct persons, it shall be considered as supply except to the extent of fifty thousand rupees in a financial year, when given by an employer to its employee. Further under Section 17(5), no ITC on any goods can be availed, if they are given as gifts, whether or not in course of furtherance of business. As a corollary if it is considered that gifts have some commercial consideration, then GST shall be paid at the time of giving away of disposal of the same and in such cases only ITC will be available. A "gift" is normally seen as an enticement to customers as in the subject case which would bear heavily on the customers in making purchase of particular quantities and above or in making payments of certain values and above. This act on behalf of the applicant if it is not excluded from the scope of being a supply, then the provisions of the Valuation Rules come into play. Thus in such cases it can safely be assumed that the purchase value and output supply value of the 'gift' shall be the same and therefore the ITC would be the same as the output GST payable. In other words if the giverof the gift does not pay output tax on the same then the compensation to the department wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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