In re GRB Dairy Foods Pvt. Ltd (GST AAR Tamilnadu)
Whether the GST paid on inputs/input services procured by the applicant to implement the promotional scheme under the name ‘Buy n Fly’ is eligible for Input Tax Credit under the GST law in terms of Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017?
The promotional rewards were extended by the applicant at their own will voluntarily without any consideration in money or money’s worth on achievement of a set target to the retailers. The rewards are not in the nature of discounts to the products but are in the nature of personal consumables and qualifies to be termed as gifts. It is to be noted that these rewards are announced based on the retailers stocking the targeted products and not on the sales made by the retailers. It is further to be noted here that the rewards are handed out to the successful persons and no tax invoice/any taxation document is raised for such handout. Also, it is stated that the goods are distributed on fulfillment of the conditions of the scheme, with no separate consideration, therefore, the distribution of goods and services to the retailers as per the Scheme is not a ‘Supply’ as defined under Section 7 of the GST Act. Section 17(5)(h) expressly restricts ITC on such gifts, even if they are procured in the course of furtherance of business. Therefore, it is clear that the tax paid on the goods/services procured for distribution as rewards extended by the applicant in the ‘Buy n Fly’ scheme is not available to them as ITC in as much as such rewards have been extended as gifts.
To sum up the input goods/services in the form of Trip to Dubai, Gold voucher, Televisions, Air coolers procured by the applicant for the intended use in furtherance of their business and distributed to the retailers under the ‘Buy N Fly’ scheme, are goods/services which are in the nature of gifts for personal consumption of the receiver specifically restricted under S.17(5)(g) of the GST Act. Further, the promotional rewards in goods being consumables in nature are gifts extended to the retailers for promoting their products, voluntarily distributed by the applicant without any consideration/ Tax invoice and are in the nature of gifts meant for personal consumption. Hence the input tax credit of the taxes paid on the goods/services procured to be distributed as rewards is not available to them under Section 17(5)(g) read with S. 17(5)(h) of the CGST Act 2017.
Read AAAR Order : No ITC on gifts or rewards given without consideration
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING,TAMILNADU
Note: Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
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GRB DAIRY FOODS PVT LTD, 10 Sidco Shed, Sipcot Industrial Complex, Hosur, Krishnagiri District, Tamil Nadu- 635126 (hereinafter called the ‘Applicant’) is registered under the GST Vide GSTIN 33AACCG0136G1Z8. They have sought Advance Ruling on the following question:-
Whether the GST paid on inputs/input services procured by the applicant to implement the promotional scheme under the name ‘Buy n Fly’ is eligible for Input Tax Credit under the GST law in terms of Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The Applicant has stated that they are engaged in the business of manufacture and supply of ghee and other products. They have their factory premises at Tamil Nadu and Karnataka having separate GST registration in both the States. The product groups of the applicant are classified into ghee, masalas, instant mixes and sweets. The products supplied by them are taxable under the Act and none of the products are either “Exempted” or “Nil rated”. They sell their products through various retail stores across the country and obtain substantial revenue from Export Sales too. With the objective of expanding the market share’, the applicant launched a sales promotional offer to enhance sales of its products. The sales promotional offer was named as ‘Buy n Fly’ scheme. The scheme was valid from 8th April 2019 to 8lh July 2019. This scheme is applicable for sales of Instant Mix, Masalas, ready to eat sweets and snacks. In other words, based on the quantity and value purchases made by retailers from sub stockists, the rewards fixed under the scheme would be awarded by the company to retailers. The supply chain of the applicant is as follows:
Manufacturer (ORB)—->Super stockist —-> Sub stockist (Wholesaler) —-> Retailer.
2.2 The applicant 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/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-stockist 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 direction of retailers to participate’ in the scheme. As per the scheme, retail-outlets shall make efforts to maximize the sales of applicant’s products which in turn leads to increase in purchase of products by them from sub-stockist. 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 rewards/rewards. Broadly the obligations of the retail outlets under the ‘Buy n Fly’ scheme are as follows:-
1. To promote the sales of applicant’s products which in turn leads to more’ purchase of products by retail outlets from sub stockist.
2. The retail outlet is required to maintain proper accounts/documents which indicates the purchases made by them and also sales effected by them under the scheme.
3. The rewards/rewards specified under the scheme do not accrue to the retailers automatically and/or they cannot claim the same as a matter of right under the scheme.
4. They cannot participate in any other sales promotion scheme(s)/marketing scheme(s) of any other third party/vendor during the tenure of the ‘Buy n Fly’ scheme i.e. 8th April to 8th July 2019.
The terms and conditions of the ‘Buy n Fly’ scheme as contained in the brochure are as follows:-
