The Hon’ble AAR, Karnataka in Re: M/s Page Industries Limited [Advance Ruling No. KAR ADRG 54/2020 dated December 15, 2020] held that assessee is in essence not eligible to claim input tax credit (ITC) on promotional products/materials and marketing items used in promotion of their brand and marketing their products which is distributed to their distributors/franchisees free of cost (FOC).
M/s Page Industries Limited (“Applicant”) is engaged in manufacture, distribution and marketing of knitted and woven garments under the brand name of “Jockey”, swim-wears and swimming equipment’s under the brand name of “SPEEDO”. The Applicant also gets the said garments manufactured from their job workers. The Applicant market or sell their products through their own outlets and also through their distributors or dealers.
Further, to promote their brands and to market their products, the Applicant is availing the services of advertisement agencies such as ads in the print media, electronic media, outdoor advertising etc. The Applicant is also procuring the promotional products and marketing materials for use in displaying their products at the point of purchase i.e. their showrooms & showrooms of their distributors/ dealers. On availment of such advertisement services & procurement Promotional Products / marketing materials, the Applicant is paying applicable GST thereon.
Two types of materials are being distributed to franchisees (exclusive show-rooms)/distributors/ retailers(brand stores):
Whether in the facts and circumstances of the case, the promotional products /materials and marketing items used by the Applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under Section 2(59) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and GST paid on the same can be availed as ITC in terms of Section 16 of the CGST Act?
The Hon’ble AAR, Karnataka in Advance Ruling No. KAR ADRG 54/2020 dated December 15, 2020 held as under:
It is be noted that the goods and services that are bought by the organization under various promotional schemes are bought 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, promotional items bought whether or not distributable may not be treated as gifts within the meaning of Section 17(5)(h) of the CGST Act.
Further, AAAR, Maharashtra in M/s. Sanofi India Ltd. (Order No. MAH/AAAR/SS-RJ/10/2019-20 dated October 22, 2019) held that as per Section 101(3) of CGST Act no advance ruling can be issued w.r.t eligibility of ITC on the goods and services offered under various promotional schemes and as brand reminders since one member (SGST) has upheld the order of AAR and the other member (CGST) has set aside the order of the AAR in the favour of Appellant.
The Government must provide for a mechanism wherever there is denial of advance ruling when learned members of AAAR differ with each-other.
Section 16(1) of the CGST Act:
“Eligibility and conditions for taking input tax credit.
16. (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 16(5)(f) and (g) of the CGST Act:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:
(f) goods or services or both used for personal consumption
(g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
Para 2 of Schedule I to the CGST Act:
“2. 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:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”
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