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TMI Blog2022 (3) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mble 1. In term's of Section 102 of the Central Goods Services Tax Act 2017/Tamil Nadu Goods Services Tax Act 2017 ( the Act , in Short), this Order may be amended by the Appellate authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer or the appellant within a period of six months from the date of the Order. Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the appellant has been given an opportunity of being heard. 2. Under Section 103(1) of the Act, this Advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only (a). On the appellant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling; (b). On the concerned officer or the jurisdictional officer in respect of the appellant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance ruling filed by them. 2. The appellant has stated that as per the scheme the retailers have to purchase the eligible products from the distributor, sub-stockiest and they shall be eligible for the rewards under the scheme once the targets specified therein are achieved. This is a scheme aimed at promoting second leg sales in supply chain i.e. from super-stockiest to retailer which in turn would increase the over-all sales of the company and also the market share. This scheme was made known to retailers/supply chain in advance to ensure that the benefits of promotional activities accrues to the company. It is not a mandatory scheme for all the retail outlets rather it is left to the discretion of the retailers to participate in the scheme. As per the scheme, retail-outlets shall make efforts to maximize the sales of appellant's products which in turn leads to increase in purchase of products by them from sub-stockiest. The retail outlets have an obligation to increase the sales of the products covered by the scheme as much as possible and once the purchase of products by retail outlets exceeds the specified limit under the scheme they automatically become eligible to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cher, Television and Air-cooler on payment of applicable GST charged by the vendor. The quantity, cost of procurement of these goods and services and related input taxes are as follows: Air Cooler LED TV Gold Voucher Dubai trip Qty 2138 466 117 229 Cost 65,01,390 29,61,868 23,40,000 1,25,18,515 Input Taxes ₹ 11,11,910 IGST ₹ 2,66,568 CGST SGST each ₹ 11,730 IGST During the scheme period, the secondary market sales of the products i.e. purchases by the retailers stood as follows: Sales and purchases by retailer: Instant mix Masala Sweets Snacks Total 4,98,02,214 6,26,04,105 1,07,85,585 67,43,671 12,99,35,575 The appellant has furnished samp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of Section 17(5)(g) and (h) of the CGST Act, 2017 and TNGST Act, 2017. 5. Aggrieved with the above decision, the Appellant has filed the present appeal. The grounds of appeal are paraphrased as follows: They are engaged in the manufacture and supply of ghee, instant mixes, masalas and sweetmeats. The company's, products are taxable at 12%, 18% and 5% under the GST law (the Act). None of the company's products are exempted' or 'nil-rated.' To augment its sales, the appellant had launched a sales promotion scheme titled 'Buy n Fly' wherein based on the quantity and value of products purchased by the retailers, who are awarded certain rewards as per the scheme. The turnover criteria and corresponding rewards under the scheme have been stated in the 'The Facts of the case' /Supra They are eligible to claim input tax credit in respect of procurement of inputs and inputs services, being Trip to Dubai, Gold voucher, Television and Air-cooler; that they procure these goods and services in the course of business and it has direct nexus with the business carried on by them. Marketing and business expansion is an indispensable activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -HC) the Hon'ble High Court has held that once the cost incurred on the service has been added to the cost of final product, and is so assessed, it is recognition by revenue of the advertisement services having a connection with manufacture of the final product. Hence eligible to avail cenvat credit in advertisement services. In the case of CCE, Pune vs. Dai Ichi Karkaria 1999 (112) ELT 353 (SC), the Hon'ble Supreme Court held that credit may be availed in respect of inputs whose cost may not be included in the pricing of the product and consequently, not included in transaction value. It is submitted that inclusion of cost of inputs in the pricing of the product and consequently in transaction value is not a primary/supreme condition for availing ITC. The Hon'ble Court observed that the availment of credit may not immediately, directly and proportionately impact the assessable value of the finished product. In the case of Pepsi Foods LTD. Vs CCE, CHANDIGARH - (1995 (10) TMI 222 - CEGAT NEW DELHI) it was held that, the expenses incurred by the appellants, in relation to advertising would become includible in the assessable value. The contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio of the above judgments which entitle a assessee to take input credit on sales promotion expenses related to the business squarely applies under the GST law; the ratio of the above judgement would clearly apply to appellant case and under the GST law as well. Similarly in the present case, the 'Buy n Fly' scheme launched by appellant is a sales promotion scheme which is an inextricable part of business activity of the appellant. The yardstick of taking input tax credits on such sales promotion expenses has been widely accepted under the erstwhile law, Courts and trade at large. The definition of 'business' given u/s 2(17) of the CGST Act, 2017 is very wide; it is an inclusive definition and it includes any activity or transaction in connection with or incidental or ancillary to any trade, commerce, manufacture or profession carried out by the registered person. In other words, it includes both activities which have direct and indirect nexus to the business of the registered person. Hence, the launch of 'Buy n Fly' scheme and procurement of various inputs/input services forms part of their business activities and eligible for input tax credit u/s 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer certain existing moveable or immoveable property voluntarily and without consideration by one person called the donor to another called the donee and accepted by or on behalf of the donee. In the case of Birla Corporation Ltd. vs DCIT, Kolkata 2011 (10) TMI 194-ITAT (Kol), the issue involved was whether the presents which were given to stockiest and dealers were in the nature of advertising/sales promotion expenses or in the nature of gifts. It was observed by the Hon'ble Tribunal that an expenditure which had direct nexus with the sales promotion and publicity cannot be classified as gifts. The articles distributed by the assessee had direct nexus with the sales achieved through stockiest/dealer and expenditure was incurred purely for sales promotion purposes. It was held that expenditure was not incurred for giving gifts, which are normally to be given without any consideration out of one's own volition. It may be noted that this decision was under the Income Tax laws. From the foregoing, it becomes amply clear that 'gifts' are only those which are given on a voluntary basis i.e. one's own volition without any conditions attached, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by inserting the words or intended to be used before in the course . By this, the law secures the meaning of the term input even for cases where goods have been purchased but, are yet to be used in the business. Thus, the conditions of ready-to-use and put-to-use would not be relevant for considering goods as inputs . Therefore, it becomes amply clear that the appellant is eligible for ITC on the expenditure incurred related to said scheme. Board Circular No. 92/11/2019-GST dated March 7, 2019 states that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration . The contrary view is that if there is consideration then the Input Tax Credit cannot be denied. In appellant's case the prices paid for the product by the Dealers, Stockist, Retailers includes the component of Sales Promotion Expenses which is a part of the costing for the product and paid for when invoiced. Therefore appellant are eligible to take ITC. Further, referring to para C of same circular, they have submitted that Para C of the circular square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgement pronounced by the Madras High Court in the case of C. Govindarajulu Naidu Co. vs State Of Madras AIR 1953 Mad 116, (1952) 2 MLJ 614 while analysing the term 'Consumption'. By referring to the analogy provided in the aforesaid judgement, it is concluded that the term 'Consumption' cannot be understood in the limited sense of eating but in the wider sense of 'Using'. As mentioned above, the distinction as to why the same principle cannot be applied under the case in hand, the GST law has specified the terms 'used for personal consumption'. If the intent of the legislature is to cover all the items of personal use, they would have omitted the term 'consumption' and retained the term use after the word 'personal' as was under the CCR. Rather, the legislators have categorically omitted the term 'use' after the word 'personal'. The distinguishing feature is detailed below to understand the difference between the term as per the Cenvat Credit Rules (CCR) and under GST CCR - Personal use or consumption GST - Personal consumption It may be noted that the Hon'ble Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions redundant and otiose. Therefore, the Appellant submits that the rewards given to the retailers on achievement of specified targets as per the scheme shall not be considered as goods or services used for personal consumption. The credit is not based on the end consumption and the test for denying the credit is whether the person procuring the goods / services which they personally consume as opposed to business purposes which fact has not been distinguished by the AAR authority. If the AAR authority logic of interpretation of the term personal consumption is extended to interpreting the provisions of Section 17 (5) (g) this would result in absurdity as traders dealing in goods for personal consumption will not be eligible to avail ITC on such goods. Therefore, the term personal consumption shall be limited to goods or services personally consumed by them for denial of the credit which is not the case. Product price inclusive of sales promotion cost As a part of the Product Maximum Retail Price (MRP) fixing the following elements of cost are included in the pricing Material Cost Labor Cost Manufacturing Overheads (such as Electricity, Water, Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year and the such huge incremental sales is documented in the GSTR 3B returns This incremental sale proves the point on factual side of things that there is furtherance of business. The Appellant submitted that such a huge incremental sales is not possible if the promotional materials were in the nature of Gifts. The MRP price at which appellant sells to the dealers is not changed and the price pre campaign and post campaign remains the same. The actual benefit of running the Sales Promotion campaign is given to the dealers who have achieved the targets and such achievement are verified by their Sales Force. Hence, it can be clearly demonstrated in their case that the various goods and services procured for running the campaign are not by way of a Lucky Draw or chance but becomes eligible only on achieving a Sales Target. The Appellant further relies on the Australian High Court ruling in the matter of Federal Commissioner Taxation Vs McPhail wherein it has that to constitute a gift it must appear that the property transferred was transferred voluntarily and not as a result of a contractual obligation to transfer it and that no advantage of a material character was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . They furnished additional submissions and the same was taken on record. They stated that the product costing included trade promotion expenses, gift is voluntary extension but in their case there exists a contractual obligation. Further, they stated that Section 17(5)(g) do not apply to their case as the usage test is to be applied at the stage of procurement and not at the consumer end, while interpreting the said section and section 17 (5) (h) also do not apply as there is a contractual obligation in their case and the gifts cannot be said to be given on own volition. 6.2 In the additional submissions, they have stated that as follows: denial of credit under section 17(5)(g) -inconsistencies in the order of AAR:- a. The reliance placed by the AAR authorities on the case relating to C. Govindarajulu Naidu Co Vs State of Madras AIR 1953 Mad 116, (1952) 2MLJ 614 is misplaced and the judgment was delivered in context of Article 286 of the Constitution. b. The differentiating aspects of this judgment which has been relied upon by AAR which cannot be applicable to the case on hand have been highlighted in the Grounds of Appeal filed already. c. The langua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which fact is not denied by the AAR then the conditions for availing credit as detailed in Circular No 92/11/2019 dated 7th March 2019 have been fulfilled. viii. These promotional items was given only on achieving the targets which was stated in the Scheme and hence cannot be termed as Gift. The various case laws in support of what constitutes a Gift form a part of the Grounds of Appeal filed already. Further the admissibility of Sales Promotion Expenses as Input Credit under the erstwhile laws has also been supported with case laws. As the grounds for denial of the ITC as espoused in the order passed by the AAR is not in line with the facts of the case it is humbly submitted before the learned members of the AAAR that they may please take all the facts on record and render justice. Discussion and Findings 7. We have gone through the entire facts of the case, documents placed on record, Order of the Lower Authority submissions made by the appellant before us. In this case, the appellants have sought for advance ruling as to whether the GST paid on inputs/input services procured by them to implement the promotional/ reward scheme by name called as Buy n Fly would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal consumption (h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. 8.3 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 example cited by the appellant, the goods though are in the nature of the consumables for the ultimate consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted sales and the product costing included the sales promotional expenses and hence they vehemently opposed to be called the transactions as gift. At the time of personal hearing, the Authorised Representative reiterated that product costing include promotional expenses but they did not file the supporting statement for the year 2019-20 during which how much of promotional expenses including that of the amount related to the reward scheme in question was factored like the amount or percentage and in its absence, the advance ruling authority would not be able to venture into the correctness of the contention of costing factored by the appellant. The jurisprudence referred to by the appellant in this context, pertains to the existing law the provisions of which by their own statements are not the same to that of GST provisions. Howsoever, the GST Provisions are explicit in as much as Section 17(5) starts with Von-Obstante' Clause and the Act restricts the credit of tax paid on certain items as explained above. 8.5 Further, the claim that there was 24% increase in sales during period under reward scheme when compared to the same period in the previous year and that the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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