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TMI Blog2023 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... in other words non-monetary consideration paid by the dealers for the supply of gold / white goods by the applicant. As per entry 1 of the Schedule I, permanent transfer or disposal of business assets where input tax credit has been availed on such assets would cover the activity of distribution of white goods or gold as incentive and hence would be treated as a supply of such goods as per clause (c) of Section 7(1) of the CGST Act. Whether the input tax credit of the tax paid on the gold coins and white goods are admissible or not? - HELD THAT:- Subject to the charging of tax in the invoices issued by the suppliers of gold coins and white goods, the same is eligible to be claimed as input tax credit and the same has been claimed by the applicant - applicant is issuing these gold coins and white goods so procured as incentives as per the agreement reached between himself and the recipients. It is only issued subject to the fulfilment of certain conditions and stipulations. Gift is something which is given without any conditions and stipulations and hence the same cannot be covered under the scope of gift - Since the goods are not given as gifts this clause is not applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a supply under Section 7 of the CGST Act, 2017? 4. Admissibility of the application: The question is about the admissibility of input tax credit of tax paid or deemed to have been paid and Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term and hence is admissible under Section 97(2)(d) and 97(2)(g) of the CGST Act 2017. 5. BRIEF FACTS OF THE CASE: The applicant furnishes some facts relevant to the issue: 5.1 The applicant states that they are engaged in the business of manufacture of Ordinary Portland Cement ( OPC ) Pozzolona Portland Cement ( PPC ). They incur various marketing and distribution expenses. The said expenses are incurred with a view to promote their brand/products and enhance its sales. 5.2 The applicant states that in order to achieve sales and marketing objectives, they have launched various target/performance based - discount schemes/white goods scheme for their deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt credited to the account of the dealer which in turn is based on the quantity and the grade of cement purchased by such dealer. Subsequently, to pass on the benefit of such credit lying the dealer s account, the company distributes gold coins and white goods to such dealers instead of adjusting it against the payment to be received from such dealers or issuing them credit notes. 5.10 The Applicant states that the restriction laid down in Section 17(5)(h) of the Act is applicable only in respect of goods disposed of by way of gifts . In the instant case, the gold coins and white goods distributed to the dealers cannot be regarded as gifts as the dealer is eligible for the gold coins and white goods only to the extent of amount lying as credit to his account and is subjected to the satisfaction of the terms and conditions of the scheme. 5.11 The applicant also states that the distribution of gold coins and white goods cannot be regarded as permanent transfer or disposal of business assets as the said restriction in respect of only those assets which are capitalised in the books of accounts and not in respect of the revenue expenditure. Further, the said distribution canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the gold coins and white goods are provided to the dealers in furtherance of business so as to promote and enhance the sales of the company. Thus, ITC should be allowed of the GST paid on procurement of gold coins and white goods which are given to dealers as part of the promotional schemes. Whereas Section 17(5) of the Act covers gifts for the purpose of ineligible credit which is not the case of the Applicant. 6.2 To constitute a gift the property should be transferred voluntarily and not as a result of a contractual obligation. 6.2.1 The applicant states that on a plain reading of the aforesaid provisions it can reasonably be concluded that ITC has to be reversed with respect to any goods disposed of by way of gift or free samples. However, it is important that the ambit and scope of gifts is understood properly. The applicant states that Gift has not been defined under the Act. Hence, reference will have to be made to other statutes and the jurisprudence available on the same. Gift, as per the Gift-Tax Act (18 of 1858) has been defined to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onary, Ninth Edition - The entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable, and goodwill. Online Merriam Webster Dictionary - the items on a balance sheet showing the book value of property owned. 6.3.3 The General instructions for preparation of balance sheet and statement of profit and loss of a company are provided under Schedule III of the Companies Act, 2013. Assets therein are divided into non-current and current assets as follows:- Non-current assets,- (1) (a) Fixed assets,- (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets (2) Current assets,- (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets. 6.3.4 As per Note 1 to Schedule III of the Companies Act, 2013, an asset shall be classified as current w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or disposal is a supply of goods. 6.3.9 It is evident from the aforesaid clause also that only those goods which are items of balance sheet of the company are considered as supply of goods and not all goods for the purpose of clause (a) of entry 4 of Schedule II of the Act. 6.3.10 Therefore, the term business asset mentioned under the entry 1 of Schedule-I shall be read with the clause (a) of entry 4 of schedule II, it is evident that the said entry is applicable only in case where goods which are part of the balance sheet are permanently transferred or disposed of. 6.3.11 The entry (1) of schedule I specifically uses the term business asset whereas the entry (2) of the Schedule states that supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business is considered to be deemed supplies. Entry 3 provides that supply of goods between principal and agent is considered to be deemed supplies and entry 4 of the aforesaid schedule covers import of services from a related person. Therefore, it is evident that entry 2, 3 4 uses the term goods or services . 6.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... white goods to dealers as part of promotional schemes cannot be regarded permanent transfer or disposal of business assets where ITC has been claimed on such assets. 6.4 Gold coins and white goods distributed to dealers as part of the promotional scheme cannot be regarded as supply under section 7 of the act 6.4.1 With regards to gold coins and white goods issued to dealers being treated as a supply under Section 7 of the Act, it is pertinent to analyse Section 7 of the Act. The term supply has been defined under section 7 of the Act as under:- Section 7. Scope of supply. - (1) For the purposes of this Act, the expression - supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istence of a reciprocal relationship between the supplier and recipient, where the supplier makes the supply in return for the consideration in money or otherwise flowing from the recipient. In other words, the nexus between the supply and consideration is sine qua non to constitute the taxable event of supply. 6.4.5 In the instant case, there is no consideration received by the applicant from the dealers for the gold coins and white goods distributed to them. Therefore, based on the above submissions, the gold coins and white goods issued to dealers as part of the discount / Incentive schemes cannot be regarded as supply under Section 7 of the Act. PERSONAL HEARING / PROCEEDINGS HELD ON 21.02.2023 7. Sri T.R. Venkateswaran, Chartered Accountant and Duly Authorised Representative appeared for personal hearing proceedings held on 21.02.2023 and reiterated the facts narrated in their application. FINDINGS DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 750 5.00 Quaterly Quantity Discount (QD) Product Discount (Rs./Bag) North Karnataka South Karnataka PPC 4.00 The additional guidelines in respect of the quarterly QD Scheme are,- a. Dealers with 90 days outstanding shall not be eligible for this discount b. On Strongcrete volume Rs. 5 per bag will be disbursed in the form of Gold c. Disbursement shall be made in the form of credit notes on Quarterly/ Half Yearly/ Yearly. Further, the applicant has stated that as part of the Dealer White Goods Scheme specific slabs have been identified for different markets/ locations specifying the quantity to be purchased during scheme period, by the dealer in order to avail the benefit of the scheme. The operational guidelines of the scheme are as follows Slabs Points Slab (Scheme Period) Incentive Item (Option 1) Incentive Item (Option 2) Incentive Item (Option 3) Slab 1 675 to 900 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the total discount credited to the account of the dealer and distributes the said gold coins to the dealer as per the agreed terms of the promotional scheme. The invoice for the said gold coins is raised in the name of the company and accordingly, the ITC of the GST paid on the gold coins is claimed by the Company. The applicant states that in case of Monthly/ Quarterly Quantity Discount Scheme and Dealer White Goods Scheme , the benefit provided to the dealer is determined based on the amount credited to the account of the dealer which in turn is based on the quantity and the grade of cement purchased by such dealer. Subsequently, to pass on the benefit of such credit lying in the dealer s account, the company distributes gold coins and white goods to such dealers instead of adjusting it against the payment to be received from such dealers or issuing them credit notes. 11. Regarding the second question, the applicant has stated that the distribution of gold coins and white goods cannot be regarded as permanent transfer of disposal of business assets as the said restriction is in respect of only those assets which are capitalized in the books of accounts and not in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seen that achievement of marketing targets set by the applicant, is an inducement from the dealer or in other words non-monetary consideration paid by the dealers for the supply of gold / white goods by the applicant. Further since the transfer of gold / white goods from applicant to the dealers is made for a consideration, it is covered in the definition of supply , more so when the definition of supply is an inclusive one. Even, if the same is not covered under the term consideration, the goods are permanently transferred to the dealers and input tax credit has been availed on such goods. The term assets would definitely include the inventory and since these goods are procured in the course of business, would be covered under the scope of business assets . Nowhere in the Schedule I it is stated that these business assets should be capitalized. Hence as per entry 1 of the Schedule I, permanent transfer or disposal of business assets where input tax credit has been availed on such assets would cover the activity of distribution of white goods or gold as incentive and hence would be treated as a supply of such goods as per clause (c) of Section 7(1) of the CGST Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39..... From the above, subject to the charging of tax in the invoices issued by the suppliers of gold coins and white goods, the same is eligible to be claimed as input tax credit and the same has been claimed by the applicant. 14. The applicant is issuing these gold coins and white goods so procured as incentives as per the agreement reached between himself and the recipients. It is only issued subject to the fulfilment of certain conditions and stipulations. Gift is something which is given without any conditions and stipulations and hence the same cannot be covered under the scope of gift . Section 17(5) (h) states that input tax credit is not available on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples . Since the goods are not given as gifts this clause is not applicable to the present transaction. In view of the above, the input tax credit so claimed under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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