ITC not available on GST paid on expenses incurred towards promotional schemes goods given as brand reminders: AAAR [Read Order]

The Maharashtra Appellate Authority of Advance Ruling (AAAR) has ruled that the ITC is not available on GST paid on expenses incurred towards promotional schemes goods given as brand reminders.

The appellant, Sanofi India Limited is engaged in the business of sale of pharmaceutical goods and services. The Appellant has its head office in Mumbai and manufacturing unit at Goa and Ankleshwar. The Appellant also gets its products manufactured through third party manufacturers who manufacture goods on contract manufacturing basis. Further, the Appellant provides taxable services and is registered under GST.

The Appellant in the regular course of business, incurs various marketing and distribution expenses. The said expenses are incurred with a view to promote their brand/products and enhance its sales. Under various schemes, the Appellant distributes different products among its trade channels as promotional items or brand reminders. Further, the Appellant also offers various promotional schemes such as “Shubh Labh Trade Loyalty Program”, etc.

The appellant has sought the advance ruling on the issues whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes of “Shubh Labh Loyalty Program and whether input tax credit is available of the GST paid on expenses incurred towards promotional schemes goods given as brand reminders.

The coram of Rajiv Jalota held that once it is established that the subject goods/services are being provided free of cost by the appellant to its distributors or doctors as brand reminders, and there is no contractual obligation against supply of such brand promotional goods, then the only conclusion that can be drawn is that these are given as gifts by the appellant to the distributors/wholesalers. These goods are distributed free as a goodwill gesture. No consideration in whatever form is received by the applicant and hence it is nothing but in the nature of gift. No doubt, the goods embossed with Sanofi distributed free has advertising potential and it is in the furtherance of the business. But it is also to be noted that Section 1715th) starts with a sonte clause where it overrides section 16 (1) of the CGST Act. The legislature has denied input tax credit on soch goods. These goods are inputs but distributed as free. Therefore ITC is not available as per section 17(5)(h).

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