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TMI Blog2020 (12) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... niforms, gifts and carry bags are provided to the retailers, distributors and franchisees to be used by them or give them free of cost to the purchasers of their materials. Hence they are promotional materials to attract and encourage sales of their goods and hence are expenses in his accounts. In this case, the goods do not remain in the account of the applicant and is transferred to the accounts of the retailers, distributors and franchisees, with a condition that they have to be given free of cost to the ultimate consumers, i.e. sales personnel in case of uniforms, personnel and customers in case of gifts and to the customers in case of carry bags. Non-distributable goods which are given to the distributors, franchisees and retailers - Input tax credit on capital goods - HELD THAT:- The taxes paid by the applicant on the supply of goods or services or both to him qualify as input tax credit - section 16 of the GST Acts provides for the eligibility for taking/ availing input tax credit. Since the applicant has used or intended to use the goods and services procured in the course or furtherance of business, the applicant is entitled to take input tax credit, subject to other provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the scope of supply and hence the applicant is not eligible to claim input tax credit on the same. X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. 3.5 To promote their brands and market their products at Point of Purchase, the applicant procures POP materials from the suppliers and avails the input tax credit of GST paid on the same. Thereafter, the applicant under delivery challans without transferring the title of the said goods, shifts the same to their showrooms and showrooms of their distributors/dealers to use in displaying their products. 3.6 In some of the situations, on bill to ship basis, the applicant transfers the said POP materials directly from the supplier's premises to their point of purchases. In these transactions, the title of the said POP materials lies with the applicant and such POP materials will be used as asset in displaying their products at the point of purchase and therefore they are treating the said POP materials as "input" in terms section 2(59) of CGST Act, 2017 & availing the ITC of the same in terms of section 16 of CGST Act, 2017. 3.7 Similarly, to promote their brands and market their products, the applicant is getting manufactured the marketing items such as carry bag, table calendar, wall calendar, dairy, leather bags with embossing of their brand and wooden pens with engrav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit of GST paid by the registered person on the service or goods or both supplied on him, the substantial condition is that he should have used or intend to use such goods or service or both in the course or furtherance of his business. 4.2 The applicant submitted that the phrase "used in the course or furtherance of business" in the section 16 of CGST Act, 2017 have very wide meaning. As per the said term it is not necessarily only goods or services or both procured in relation to their "output" but also include any goods or services or both used in the course or furtherance of business. Such goods used in the course or furtherance of business will qualify as "inputs" as defined in section 2(59) of CGST Act, 2017 and service will qualify as "input service" as defined in section 2(60) of CGST Act, 2017. 4.3 The applicant submitted that the Hon'ble Supreme Court in the case of Mazagon dock Ltd vs CIT and Excess Profit reported in 1958 (5) TMI 2- SUPREME COURT had an occasion to examine the scope of word "business" and held as follows: "14.... The word "business" is, as has often been said, one of the wide import and in fiscal statutes, it must be construed in a broad rather th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o apply in the case of sales promotion." 4.5 The applicant submitted that in the case of CCE, Nagpur Vs Ultratech Cement Ltd. reported in 2010 (260) ELT 369 (Bom.) = 2010 (10) TMI 13 - BOMBAY HIGH COURT the Hon'ble Bombay High Court by following the judgment in the case of Coca Cola India Pvt. Ltd. has held as follows: "38. We concur with the above decision of this Court in the case of Coca Cola India Pvt. Ltd. (supra). However, in that case, this Court has also held that the cost of any input service that forms part of value of final products would be eligible for CENVAT credit. That observation of the Division Bench is made in the context of a service which is held to be integrally connected with the business of manufacturing the final product. Therefore, the observation of the Division Bench in the case of Coca Cola India Pvt. Ltd. (supra) has to be construed to mean that where the input service used is integrally connected with the business of manufacturing the final product and the cost of that input service forms part of the cost of the final product, then credit of service tax paid on such input service would be allowable." The principle laid down in the above judgements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e those items in promotion and marketing activity. In the 'gift' there will not be any further obligation on the part of the person who accept the gift but whereas in sending the said promotional/ marketing items by the applicant to their distributors/ dealers, there is an obligation on the part of distributors/dealers to promote the brand & products of the applicant by using those promotional/ marketing items. As per the agency/ dealership agreements entered between the applicant and their dealers, it is the obligation on their part to promote the brands of the applicant and market the products of the applicant. 4.10 The applicant submits that under the delivery challan they are sending the said promotional/ marketing products at their point of purchase i.e. their showrooms and their distributor/dealers' showroom to use it in promoting their brands and market their products and they are not transferring the title of the said items. The said promotional/ marketing items used in the showrooms to promote their brand and market their products at point of purchase are also one kind of advertisement of brand and products. Once the advertisement service used in promoting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input" in terms of section 2(59) of CGST Act, 2017 and GST paid on the same is entitle to avail as "input tax credit" in terms of section 16 of CGST Act. 2017. 6. The applicant has filed additional submissions as follows: 6.1 The Applicant submitted that to promote their brands and market their products at the point of purchase i.e. Exclusive Brand Operators show rooms (for short "EBO show rooms") and retail show rooms, the applicants are using the various promotional products and marketing items and on which the Applicant have paid the applicable GST. 6.2 Display Items The applicant submitted that to display their products at the point of purchase and to effectively made known their range of products to the ultimate customers, the applicant is procuring DISPLAY ITEMS such as stands, hangers, cupboards, ladders etc. and sending those to the Exclusive Brand Operators and Retailers to display their branded products at the show rooms. 6.3 Display Boards for Retail Boarding The applicant submitted that to promote their products at retail level and to help the customers in identifying the exclusive brand operator & retailer of the applicant's brand in the market, the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actured with logo of their brands and distribute the same to their Exclusive Brand Operators and Retailers to use in the stores. 6.9 The applicant submitted that to promote their brands at point of purchase level, they procure various promotion items such as display items, display boards, uniforms, posters, gifts, catalogues & pamphlets and carry bags etc, on payment of applicable GST and distribute the same under challans to their Exclusive Brand Operators and Retailers to use in the brand promotion. Since the brand promotion being in furtherance or in the course of their business, the applicant, treating the said promotional item as "input" as defined in section 2(59) of CGST Act, 2017, is availing the GST paid on the same as "input tax credit" in terms of section 16 of CGST Act, 2017. 7. Further the applicant submitted that their Exclusive Brand Operators and Retailers are obligated to promote their brands and at the instructions of the applicant they use the said promotional items in promoting the brands at the stores level. Since no ownership of the said promotional items have been transferred and same not being permitted for their personal use of the Exclusive Brand Operato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonnel d) Posters e) Gifts for brand operators, retailers, staff and sales personnel at outlets and also to customers f) Outdoor Hoardings g) Carry bags 11.2 The contention of the applicant is that these are all procured by them either as goods or as services in the course or furtherance of business and hence are inputs and input services. 11.3 The applicant states that some of the materials, like display boards, Posters, Outdoor hoardings, remain in his own account and are treated as capital goods. There is no transfer of ownership of these materials to his franchisees, distributors and retailers and hence there is no sale involved in them. Further, it is also seen that these materials have no direct correlation on the amount of sales effected and are only for display in the premises of the franchisees, distributors and retailers and they remain the property of the applicant. The applicant does not show any evidence of these returned back after their effective use. 11.4 Further, the applicant states that uniforms, gifts and carry bags are provided to the retailers, distributors and franchisees to be used by them or give them free of cost to the purchasers of their mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess" The term "capital goods" is defined in clause (19) of section 2 of the GST Act as under: "(19) "capital goods" means good, the value of which is capitalized in the books of account of the person claiming input tax credit and which are used or intended to be used in the course or furtherance of business;" Since the applicant is retaining the ownership on these materials and are not a direct cost of the products sold, they can be treated as capital goods and hence needs to be capitalized in his books of accounts. Hence they cannot be treated as "input" as the term excludes capital goods, as claimed by the applicant. 12.4 On the question, whether input tax credit can be availed on these capital goods, the following points are observed: The term "input tax credit" is defined in clause (63) of section 2 of the GST Acts, as under: "(63) "input tax credit" means the credit of input tax; The term "input tax" is defined in clause (62) of section 2 of the CGST Act, 2017 as under: "(62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would be credited with these materials when they are procured and debited when they are distributed and hence they would be no longer in the accounts of the applicant. Since this transfer is not for consideration, the next step is to examine if the transaction is falling under the First Schedule of CGST Act, 2017. Relevant portion of the First Schedule of CGST Act, 2017 is given below: Activities to be treated as Supply even if made without consideration: 3. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course of furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 13.1 The treatment of gifts given in sales promotion are enumerated in Circular No.92/ 11/2019- GST dated 07.03.2019, and the related contents of the same are extracted as under: "Subject: Clarification on various doubts related to treatment of sales promotion schemes under GST - Reg. Various representations have been received seeking clarification on issues raised with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC" 13.2 The applicant, in the instant case, disposes / issues the distributable goods free of cost i.e, without any consideration to two categories i.e. Franchisees (Exclusive Show Rooms) and other shops / retailers, Ävhere all brands are sold (Retailers / All brands stores). Now we examine each category whether they become related persons to the applicant arenot. vin this regard we invite reference to Section 15(5)(c) of the CGST Act 2017 which stipulates that "persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other, shall be deemed to be related". 13.3 In the instant case, with regard to the first category i.e. the Franchisees of the applicant are associated in the business of one another and hence are related persons. It is an admitted fact that the applicant disposes the distributable goods by way of gifts and free supplies to promote business and hence are to be treated as supplies in terms of para 2 of Schedule I to the CGST Act 2017. Thus the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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