The Hon’ble AAAR, Maharashtra in M/s. Sanofi India Ltd. (Order No. MAH/AAAR/SS-RJ/10/2019-20 dated October 22, 2019) has held that as per Section 101(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) no advance ruling can be issued w.r.t eligibility of input tax credit (ITC) on the goods and services offered under various promotional schemes and as brand reminders since one member (SGST) has upheld the order of Authority of Advance Ruling (AAR) and the other member (CGST) has set aside the order of the AAR in the favour of Appellant.
The Sanofi India Ltd. (the Appellant) is engaged in business of sale of pharmaceutical goods and services. The Appellant incurs various marketing and distribution expenses in regular course of business to promote their brand and enhance its sales. The Appellant offers various promotional schemes such as “Shubh Labh Trade Loyalty Program” (“the Scheme”) in which distributors/wholesalers are rewarded on the basis of quantity sold by them. They are awarded with a trip to Singapore and watches under the Scheme.
The Appellant also distributed products like pens, notepad, key chains etc. as brand reminders to the distributors and dealers. The said products are embossed with Sanofi brand. The brand embossed on these product serves as an advertisement tool. Such goods act as reminder of the association with the brand Sanofi so as to promote sales.
In the light of the above business model, the Appellant applied for advance ruling in an application dated January 28, 2019 on the question of law as to whether the GST paid on expenses incurred towards the Scheme or goods given as brand reminders is available as ITC.
The Appellant submitted that:
AAR – Did not gave its order in favour of the Appellant and ruled that ITC is not available of the GST paid on expenses incurred towards the Scheme and goods given as brand reminders as no consideration was charged by the Appellant while providing them under the Scheme or as brand reminders and therefore, amount to gift- blocked ITC under Section 17(5)(h) of the CGST Act.
Whether the ITC is available on the goods and services offered under the Scheme and as brand reminders by the Appellant?
The Hon’ble AAAR, Maharashtra in Order No. MAH/AAAR/SS-RJ/10/2019-20 dated October 22, 2019 held as under:
i. The promotional items are not gifts as they are supplied as a contractual obligation which serve as an advertisement tool and brand reminders to promote sales- not a gift as there is contractual obligation.
ii. Although the above is true, there is also a contractual obligation, at the same time it is not a supply in the nature of barter that is supply of promotional goods against supply of services such as increased sales, advertisement of products and sales promotion- no consideration therefore, no barter.
It is be noted that the goods and services that are distributed by the organization under various promotional schemes to its distributors are done by them in order to increase their sales and promote their brand and their cost is already taken into account by the organizations while finalizing the pricing of the items manufactured by the Company. Therefore, these sales promotion goods or services cannot be regarded as gifts as per the provision of Section 17(5)(h) of the CGST Act which denies ITC on goods lost, stolen, destroyed, written of or disposed of by way of gift or free samples.
Thus, distribution of bought out goods by the organizations to their distributors may not be treated as gifts within the meaning of Section 17(5)(h) of the CGST Act.
Further, the Government must provide for a mechanism wherever there is denial of advance ruling when learned members of AAAR differ with each-other.
Section 17(5)(h) of CGST Act:
(5 )Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
Section 16(1) of CGST Act:
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
Section 101(3) of CGST Act:
(3) Where the members of the Appellate Authority differ on any point or points referred to in appeal or reference, it shall be deemed that no advance ruling can be issued in respect of the question under the appeal or reference.
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