The Tamil Nadu Authority of Advance Ruling (AAR) ruled that the no Input Tax Credit (ITC) is available to manufacturers who purchased Dubai tickets, gold vouchers, home appliances for rewarding retailers who meet targets.
The applicant, GRB Dairy Food Pvt. Ltd. with the objective of expanding the market share’, the applicant launched a sales promotional offer to enhance sales of its products. The sales promotional offer was named as ‘Buy n Fly’ scheme. The scheme was valid from 8th April 2019 to 8lh July 2019. This scheme is applicable for sales of Instant Mix, Masalas, ready-to-eat sweets, and snacks. In other words, based on the quantity and value purchases made by retailers from sub stockists, the rewards fixed under the scheme would be awarded by the company to retailers.
The applicant has stated that as per the scheme the retailers have to purchase the eligible products from the distributor, sub stockiest and they shall be eligible for the rewards/rewards under the scheme once the targets specified therein are achieved. This is a scheme aimed at promoting second leg sales in the supply chain i.e. from super-stockist to retailer which in turn would increase the overall sales of the company and also the market share. This scheme was made known to retailers/supply chains in advance to ensure that the benefits of promotional activities accrue to the company. It is not a mandatory scheme for all the retail outlets rather it is left in the direction of retailers to participate in the scheme. As per the scheme, retail outlets shall make efforts to maximize the sales of applicants’ products which in turn leads to an increase in the purchase of products by them from sub-stockist. The retail outlets have an obligation to increase the sales of the products covered by the scheme as much as possible and once the purchase of products by retail outlets exceeds the specified limit under the scheme they automatically become eligible to the rewards/rewards.
This scheme is applicable for sales of Instant Mix, Masalas, ready-to-cat sweets, and snacks. In other words, based on the quantity and value purchases made by retailers from sub stockists, the rewards fixed under the scheme would be awarded by the company to retailers.
The issue raised was whether the GST paid on inputs/input services procured by the applicant to implement the promotional scheme under the name ‘Buy n Fly’ is eligible for Input Tax Credit under the GST law in terms of Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017.
The coram of L.Latha and T.G.Venkatesh ruled that the promotional rewards were extended by the applicant at their own will voluntarily without any consideration in money or money’s worth on achievement of a set target to the retailers. The rewards are not in the nature of discounts to the products but are in the nature of personal consumables and qualify to be termed as gifts. It is to be noted that these rewards are announced based on the retailers stocking the targeted products and not on the sales made by the retailers. It is further to be noted here that the rewards are handed out to the successful persons and no tax invoice/any taxation document is raised for such handout. Also, it is stated that the goods are distributed in 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 GST Act. Section 17(5)(h) expressly restricts ITC on such gifts, even if they are procured in the course or furtherance of business.
The AAR clarified that the tax paid on the goods/services procured for distribution as rewards extended by the applicant in the ‘Buy n Fly’ scheme is not available to them as ITC in as much as such rewards have been extended as gifts.
“The input goods/services in the form of Trip to Dubai, Gold voucher, Televisions, Air coolers procured by the applicant for the intended use in furtherance of their business and distributed to the retailers under the ‘Buy N Fly’ scheme, are goods/services which are in the nature of gifts for personal consumption of the receiver specifically restricted under S.17(5)(g) of the GST Act. Further, the promotional rewards in goods being consumables in nature are gifts extended to the retailers for promoting their products, voluntarily distributed by the applicant without any consideration/ Tax invoice, and are in the nature of gifts meant for personal consumption. Hence the input tax credit of the taxes paid on the goods/services procured to be distributed as rewards is not available to them under Section 17(5)(g) read with S. 17(5)(h) of the CGST Act 2017,” the AAR said.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
