ITC Eligibility on the Goods Distributed for Promotion – AAR Karnataka
by ReinHeads Team | Feb 1, 2021
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AAR Karnataka* – ITC Eligibility on the Goods Distributed for Promotion
| Facts |
- Page Industries Ltd (‘the Applicant’) is engaged in manufacture, distribution and marketing of knitted and woven branded garments
- In order to promote their brands and to market their products, the Applicant procured various material (such as display board, posters, outdoor hoarding, uniforms for sales personnel, posters, carry bags, etc.) and delivered to the distributor/ franchises/ retailers
- Ownership of some goods (such as display board, posters, etc.) vests with the Applicant and treated as capital goods in books of accounts
- Other materials (such as uniforms, carry bags, gifts) are given to distributors/ franchises for use by them or to be given as free of cost to the customers for encouraging the sales (like sale personnel in case of uniforms, carry bags and gifts to end customers)
- Hence, the promotional material procured by the Applicant is categorised as under (basis of their final use):
- Non-distributable Goods – Delivered to the distributors/ franchises for use but ownership vests with the Applicant
- Distributable Goods – Delivered free of cost to the distributors/ franchises for further distribution to their employees/ customers
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| Issues before the AAR |
- Whether the promotional materials and marketing items used by the Applicant (in promoting their brand and marketing) can be considered as ‘inputs’ under Section 2(59) of the Central Goods and Services Tax Act, 2017 (‘the CGST Act, 2017’) and GST paid can be availed as Input Tax Credit (ITC) under Section 16 of the CGST Act, 2017?
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| Discussion and Findings of the AAR |
| Nature of Goods |
Usage |
AAR Held |
| Non – distributable goods |
- Goods are returned back (post usage) to the Applicant by the distributors/ franchises, which are taken back into the accounts for further usage or destroyed as not usable; or
- Goods are not returned and written off in the books of accounts of the Applicant
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- Goods cannot be treated as ‘inputs’ as are not direct cost of the products sold and capitalized in the books.
- Although goods are used for the purpose of business, however at the time of writing off or getting lost/ destroyed, ITC claimed on such goods needs to be reversed under Section 16 of the CGST Act, 2017 read with Rule 43 of the Central GST Rules, 2017
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| Distributable Goods |
Goods are procured by the Applicant and used for sales promotion. The same are given free of cost to the distributors/ franchises (i.e. without consideration) and would no longer be in accounts of the Applicant |
- The Applicant and the franchisees are business associates and thereby related persons under the GST law. The transaction will be treated as supplies in terms of the Schedule I to the CGST Act. Thus, the Applicant need to discharge GST on such supplies and entitled to avail ITC on the such goods
- The Applicant and brand store (Retailers) do not qualify as related persons under the GST law. In light of the Circular No 92/11/2019 – GST dated 07 March 2019, transaction does not come under the scope of supply and the Applicant is not eligible to claim ITC on the same.
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*Advance Ruling No. KAR-ADRG-54/2020 dated 15 December 2020 (The Authority for Advance Ruling, Karnataka) |
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