The Authority of Advance Ruling (AAR), Uttar Pradesh has ruled that the service procured for the promotional scheme is not entitled to the input tax credit.
M/s Rodec Pharmaceuticals Private Limited, the Applicant engaged in the business of Trading Animal Health Products. The product groups are classified into Antibiotic, Anthelmintic, and Analgesic & Antipyretic, Anti-Spasmodic, Ectoparasiticide, Feed Supplement, and Progesterone which were both taxable and exempted under the GST Act.
To expand the market share, they launched some sales promotional offers to enhance sales of their products in the name of “BUMPER OFFER, WINTER BONANZA” where they offer some free additional products (such as lunch boxes, sandwich makers etc) along with purchases.
The applicant stated that promotional items distributed to retailers are to be treated as inputs/input services used in the furtherance of business and the promotional materials are not gifts and are not covered under Section 17(5)(h) of the CGST Act, 2017.
The promotional scheme was extended by the applicant of their own will voluntarily without any consideration of money. The goods distributed under the promotional scheme are not like discounts on the products but are like personal consumables and qualify to be termed as gifts.
It was viewed that the goods are distributed in fulfilment 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 gifts, even if they are procured in the course of furtherance of business.
A Coram of Shri Rajendra, Kumar member (Central Tax ) and Shri Vivek Arya, member (State Tax) held “that the applicant is engaged in the business of trading animal health products and not in the business of the 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.”
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