Input Tax Credit on Free Supplies – AAR, Gujarat*
by ReinHeads Team | May 1, 2020
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Input Tax Credit on Free Supplies – AAR, Gujarat*
| Facts |
- Moksh Agarbatti Co. (‘the Applicant’) engaged in production and distribution of Agarbatti
- The Applicant offers freebies and gifts (monetary and non-monetary) to its distributors and customers in order to increase their sales
- The incentives/ offers provided by the Applicant are summarized as under:
- One unit of Dhoop is offered to those customers who purchases a pack of Agarbatti;
- Target based non-monetary incentives are provided to distributors like Pressure Cooker on purchase of 1,00,000 Agarbatti Packets (which are floated in advance during the year)
- In order to increase the sale of carton boxes of Agarbatti, one extra packet (of Agarbatti) is offered on purchase of one carton of Agarbatti
- The Applicant has also purchased motor vehicle for providing the transportation facility to its Director and Employees
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| Issue before the Authority for Advance Ruling (‘AAR’) |
- Can the Applicant claim Input Tax Credit (‘ITC’) of taxes paid on:
(i) Inputs used for manufacture of Dhoop?
(ii) Purchase of Dhoop from a third party vendor?
(iii) Agarbatti which has been given free of cost on purchase of one carton of Agarbatti?
· Can the Applicant avail credit on the non-monetary incentives provided to distributors and whether the same can qualify as supply of goods to distributors?
- Can taxes paid on the insurance and maintenance charges of the motor vehicles used for transportation of Director and Employees be available as ITC?
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| Discussion and Findings of the AAR |
- Section 17(5)(h) of the Central Goods and Services Tax Act, 2017 (‘the CGST Act’) disallows the ITC on the goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
- In view of above, the AAR held that all the goods provided by the Applicant to distributor or customers under various offers were gifts. On the basis of aforesaid provisions, ITC will not be available in respect of taxes paid at the time of procurement of goods, which were given as gifts/ incentives
- The AAR did not comment on the question as to whether providing non-monetary incentives i.e., the Pressure Cooker would amount to supply of goods to the distributor
- Further, in light of the provisions under Section 17(5)(a) of the CGST Act (i.e., disallowance of ITC in respect of motor vehicles), no ITC will be available in respect of the taxes paid on insurance and maintenance charges of the motor vehicles used for transportation of Directors and Employees
* M/s. Moksh Agarbatti Co. (Ruling Order No. GUJ/GAAR/R/14/2019) |
