In re Rodec Pharmaceuticals Private Limited (GST AAR Uttar Pradesh)
Question-1 Whether the GST paid on inputs/input services procured by us for promotional scheme are eligible for input tax credit under the GST law in terms of section 16 read with section 17 of the CGST Act, 2017?
Answer- The promotional scheme was extended by the applicant at their own will voluntarily without any consideration in money. The goods distributed under promotional scheme 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. The ‘Scheme Circular’ provided by the applicant alongwith Form GST ARA-01 also contains the words ‘Gift Option 1’, ‘Gift Option 2’ and ‘Gift Option 3’. Further, the gift items are fixed based on the retailers purchase of the targeted products as per Annexure C of the Form GST ARA-01 and not on the sales made by the retailers. Moreover, the rewards are handed out to the successful retailers and no tax invoice/any taxation document are raised for such handout. Also, 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 CGST 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 procured for distribution as rewards extended by the applicant in the ‘Bumper Offer, Winter Bonanza’ scheme or any other such scheme is not available to them as ITC in as much as such rewards have been extended as gifts on purchase of animal health products.
As such, the answer of the first question raised by the applicant in the application of advance ruling is negative in our view.
Question-2- Also, whether Input Tax Credit is admissible to us in respect of tax paid on
i) Service provided by the hotel including accommodation, food & beverages.
ii) Supply of food and beverages by outside caters to employees in respect of Business conference meetings.
Answer-
The applicant has submitted that the hotel will be providing a bouquet of Services to them like accommodation for the delegates, availability of conference hall and Food & beverages. The above bundle of services shall qualify as a composite supply by the hotel where accommodation service shall be the principal supply. Input Tax Credit of CGST and SGST charged by the hotel on the composite supply of accommodation service shall be available to them since such supply will be used in course of business and it is an eligible credit in terms of Section 16 of CGST Act, 2017.
From the co joint reading of Section 16 and 17(5)(b) of the Central Goods and Services Tax Act, 2017, it is observed that the ITC with respect to food and beverages and outdoor catering shall be available only where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.
We find that the applicant is engaged in the business of trading of animal health products and not in the business of provision of food or catering.. Even if the provision of food and catering had been in the course of furtherance of business, the applicant is not entitled to the input tax credit in light of the express bar provided under Section 17(5)(b)(i) of the CGST Act, 2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH
1. M/s RODEC PHARMACEUTICALS PRIVATE LIMITED, C-36, Patel Nagar II, Meerut Road, Ghaziabad-201001 (here in after referred to as the applicant) is a registered assessee under GST having GSTIN: 09AABCR5958E1Z5.
2. The applicant has sought advance ruling on following question-
(1) Whether the GST paid on inputs/input services procured by us for promotional scheme are eligible for input tax credit under the GST law in terms of section 16 read with section 17 of the CGST Act, 2017?
(2) Also, whether Input Tax Credit is admissible to us in respect of tax paid on,-
i) Services provided by the hotel including accommodation, food & beverages.
ii) Supply of food and beverages by outside caterer to our employees in respect of Business conference meetings.
3. As per declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending nor decided in any proceedings under any of the provisions of the Act, against the applicant.
4. As per statement of facts submitted by the applicant-
(i) The Applicant is engaged in the business of Trading of Animal Health Products.
(ii) their product groups are classified into Antibiotic, Anthelmintic, and Analgesic & Antipyretic, Anti-Spasmodic, Ectoparasiticide, Feed Supplement, and Progesterone.
(iii) The products supplied by them are both taxable and exempted under the GST Act.
(iv) they sell their products through various retail stores across the country and obtain substantial revenue .
(v) With the objective of expanding the market share, they launched some sales promotional offers to enhance sales of their products.
(vi) The sales promotional offers are named as “BUMPER OFFER, WINTER BONANZA” etc.
(vii) The current scheme is valid from 1st January 2022 to 31st March 2022.
(viii) This scheme is applicable for sales of health products related to animals.
(ix) They provide fixed rewards to retailers under the schemes based on the quantity and value purchases made by retailers from sub stockiest.
(x) They offer some free additional products along with purchase under several offers/schemes. Some examples are mentioned below for better understanding:
a) If a retailer purchases 1 case of CVSS (1 K.G) under the offer “Power Bonanza”, he will get 1 Milton Double Decker lunch box absolutely free.
b) If a retailer purchases Antibiotics of Rs. 11,000 under the “Winter Offer”, he will get a Maharaja Sandwich Maker or MOP with Bucket absolutely free and if the retailer purchases Antibiotics of Rs. 13,000
c) under the same offer, he will get a signature blanket or a ceiling fan free.
d) If a retailer purchases 100 vials OLONE-CEF I.U. or Hygen/Mix of Both then he will get an Electric Kettle absolutely free under the “Combo Offer”.
(xi) because of these kinds of offers and schemes, they have to purchase some additional products which they distribute to retailers under several offers absolutely free.
(xii) They have to do meetings and conferences for business promotion within India and outside India. And for that, they have to book hotels, cabs and incur many other similar expenses like that.
5. The applicant has submitted their interpretation of law as under-
(i) They had referred to various provisions of CGST Act, 2017 viz. section 2(17); sec 2(31); sec 2(59); sec 2(60), section 16 and section 17(5) (h).
(ii) As per the provisions of sec 16 of the Act, any registered person is eligible to claim input tax credit charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business; the conditions specified u/s 16(2) is as under:
(a) The registered person should possess the tax invoice issued by the supplier.
(b) Registered person must have received the goods.
(c) The tax charged in respect of such supply has been actually paid to government.
(d) Registered person has furnished the return u/s 39 of CGST Act, 2017
(iii) they fulfill all the above conditions and hence they are eligible to take input tax credit.
(iv) They have placed reliance on case law o/M/s Coca Cola India Pvt. Ltd. Vs CCE Pune 2009 (8) TMI 50 (BOM HC).
(v) they had launched several Sales promotion schemes titled “Bumper Offer”, “Winter Bonanza”, “Power Bonanza” etc. Based on the quantity and value of products purchased by the retailers, they are awarded certain rewards as per the scheme.
(vi) they are eligible to claim input tax credit in respect of procurement of input and input services of those products which are distributed to retailers as rewards because they procure these goods and services in the course of business and it has direct nexus with the business carried on by the company
(vii) the products like Milton Double Decker lunch box, Electric Kettle, Iron, Ceiling Fans etc. procured by them will be used in course of business by way of handing over them as rewards to eligible retailers who participated in the scheme.
(viii) In reference to the question, bundle of services is being offered to the delegates, reference to the concept of ‘composite supply’ under CGST Act, 2017 is required:
(ix) “composite supply” means a supply ‘made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with ordinary course of business, one of which is a principal supply;
(x) As per the definition, the essential conditions for a supply to qualify as composite supply can be highlighted as under:-
(a) 2 or more taxable supplies of goods or services or both.
(b) The taxable supplies should be naturally bundled.
(c) The taxable supplies should be supplied in conjunction with each other.
(d) One taxable supply should be a principal supply.
(xi) Education Guide issued by CBEC in the year 2012 is referred which provided that whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business.
(xii) Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below –
(a) The perception of the consumer or the service receiver.
(b) There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.
(c) The elements are normally advertised as a package.
(d) The different elements are not available separately.
(e) The different elements are integral to one overall supply if one or more is removed, the nature of the supply would be affected.
(xiii) They procure various supplies during the course of conferences and meetings including the following:
