In re Moksh Agarbatti Co.(GST AAR Gujarat)
Question 1: The tax payer offers one unit of Dhoop with a pack of Agarbatti (consisting of 10 pieces of Agarbatti). Can the tax payer claim credit of taxes paid on
a) inputs used for manufacture of Dhoop?
b) Purchase of dhoop from a third party vendor?
Answer: Answered in negative.
Question 2: As part of the Sales Promotion campaign, the tax payer offers their distributors target based monetary and non-monetary incentives. Can they avail credit on the non-monetary incentives like say Pressure Cooker on purchase of 100,000 Agarbatti Packets? Can this qualify as supply of goods to the distributor?
Answer: Answered in negative.
Question 3: The tax payer offers one unit of Agarbatti free on purchase of 1 Carton Box full of Agarbatti. Can credit of the Agarbatti given free of cost be availed as credit by the tax payer?
Answer: Answered in negative.
Question 4: The tax payer has purchased motor vehicle for transport of Director and Employees. Can credit of insurance and maintenance of these motor vehicles be availed as credit?
Answer: Answered in negative.
FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING,GUJARAT
2. The applicant has submitted following Questions for which advance ruling is required:
i) The tax payer offers one unit of Dhoop with a pack of Agarbatti (consisting of 10 pieces of Agarbatti). Can the tax payer claim credit of taxes paid on
a) Inputs used for manufacture of Dhoop?
b) Purchase of dhoop from a third party vendor?
ii) As part of the Sales Promotion campaign, the tax payer offers their distributors target based monetary and non-monetary incentives. Can they avail credit on the nonmonetary incentives like say Pressure Cooker on purchase of 1,00,000 Agarbatti Packets? Can this qualify as supply of goods to the distributor?
iii) The tax payer offers one unit of Agarbatti free on purchase of 1 Carton Box full of Agarbatti. Can credit of the Agarbatti given free of cost be availed as credit by the tax payer?
iv) The tax payer has purchased motor vehicle for transport of Director and Employees. Can credit of insurance and maintenance of these motor vehicles be availed as credit?
2.1 Statement of relevant facts, submitted by the applicant, having a bearing on the questions raised:
i) With respect to Question 1 to 3, the applicant submits that no product is given free of cost. The prices of these products are already factored in the final price charged from the distributor. The Agarbatti Market is price sensitive and brand recall value is very less. The applicant offers freebies and gifts to distributors to ensure that the distributor offers the applicant product to end customer and thereby increase the sales. Thus, this is only a marketing gimmick to ensure that distributors are encouraged to sell the products of applicant in preference to other company products.
ii) Another typical problem faced in Agarbatti Market is the fact that value discounts are not passed on to the customer. To ensure that these are passed on to the end customer, we are forced to issue discounts in the form of offering Dhoop with Agarbatti instead of reducing the price of the Agarbatti.
2.2 Statement containing the applicant’s interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant’s view point and submissions on issues on which the advance ruling is sought):
i) Section 17(5)(h) of the CGST Act, 2017 restricts credit on goods disposed of by way of gift or free samples. In this regard, the applicant wishes to submit the following:
