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SGST AAAR

GST – Karnataka AAAR - Promotional goods, Input Tax Credit, Non-taxable supply - Gift – Capital goods or input - Admissibility to Input Tax Credit on Promotional Materials & Marketing items used for brand promotion and marketing of products – HELD - there is a contractual obligation on the part of the appellant to provide promotional materials to their Exclusive Brand Outlet / franchisees and distributors. The purpose of providing the EBO/franchisees and distributors with these promotional items is to enhance the sales of their products. Thus, these promotional items, referred to as ‘non-distributable goods’, are used in the course or furtherance of the appellant’s business – further, the title of the promotional items remains with the Appellant and is not transferred to the EBO or the distributor. In normal accounting standards, the cost incurred for promotional activities and procurement of promotional items is an expense for the Company. Such promotional expenses are incurred with the objective of generating more revenue for the Company - The promotional items are not capitalised by the appellant in their books of accounts but are always treated as revenue expenditure and hence they cannot be considered as ‘capital goods’. This is in tune with the normal accounting practices - therefore, the promotional items purchased by the Appellant and provided to the EBOs/franchisees, distributors and retailers are not capital goods but ‘inputs’ which are used in the course or furtherance of business - The Promotional Products and Marketing items used by the Appellant in brand promotion and marketing of products can be considered as “inputs” as defined in Section 2(59) of the CGST Act. However, the GST paid on the same cannot be availed as input tax credit in view of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act – the order of Authority of Advance Ruling is modified - The activity of providing the promotional items can be termed as an ‘non-taxable supply’ as defined in Section 2(78) of the CGST Act - Section 17(2) of the CGST Act provides that input tax credit shall be allowed only when the goods and services or both are used for business purposes or for making a taxable supply, including zero-rated supply. When the goods or services or both are used towards making an exempt supply, then input tax credit is not allowed. As per Section 2(47) of the CGST Act, the term ‘exempt supply’ also includes non-taxable supply. In view of the said provisions, the GST paid on the procurement of promotional items supplied to the EBOs/franchisees and distributors free of charge will not be eligible for input tax credit since the said supply is a non-taxable supply - the give away promotional items which are distributed at the sole discretion of the Appellant without any contractual obligation or consideration, acquires the character of gifts. The goods procured on payment of GST which are disposed of by way of gifts are barred from being eligible for input tax credit in terms of Section 17(5)(h), even if they are used in the course or furtherance of business. Therefore, input tax credit is not eligible on the promotional items distributed as give away items on the grounds that the same is blocked by virtue of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act
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