Home Case Index All Cases GST GST + AAR GST - 2020 (12) TMI AAR This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (12) TMI 902 - AUTHORITY FOR ADVANCE RULING, KARNATAKAInputs or not - Gift items - promotional products / Materials and Marketing Items used by the Applicant in promoting their brand and marketing their products - section 2(59) of the CGST Act, 2017 - input tax credit in terms of section 16 of the CGST Act, 2017 - HELD THAT:- The applicant states that some of the materials, like display boards, Posters, Outdoor hoardings, remain in his own account and are treated as capital goods. There is no transfer of ownership of these materials to his franchisees, distributors and retailers and hence there is no sale involved in them. Further, it is also seen that these materials have no direct correlation on the amount of sales effected and are only for display in the premises of the franchisees, distributors and retailers and they remain the property of the applicant. The applicant does not show any evidence of these returned back after their effective use - the applicant states that uniforms, gifts and carry bags are provided to the retailers, distributors and franchisees to be used by them or give them free of cost to the purchasers of their materials. Hence they are promotional materials to attract and encourage sales of their goods and hence are expenses in his accounts. In this case, the goods do not remain in the account of the applicant and is transferred to the accounts of the retailers, distributors and franchisees, with a condition that they have to be given free of cost to the ultimate consumers, i.e. sales personnel in case of uniforms, personnel and customers in case of gifts and to the customers in case of carry bags. Non-distributable goods which are given to the distributors, franchisees and retailers - Input tax credit on capital goods - HELD THAT:- The taxes paid by the applicant on the supply of goods or services or both to him qualify as input tax credit - section 16 of the GST Acts provides for the eligibility for taking/ availing input tax credit. Since the applicant has used or intended to use the goods and services procured in the course or furtherance of business, the applicant is entitled to take input tax credit, subject to other provisions of the Act and there is no blockage attributable to section 17 (1) as the applicant has used the goods in the course or furtherance of business - the non-distributable goods are used by the applicant for the purpose of their business and at the time of such writting off or loss or destroyed, the input tax credit claimed on such goods are to be reversed. The applicant has not made any submissions regarding what is ultimately done to these goods after the end of period of usage. Assuming that they are written off or destroyed or lost, the input tax credit claimed under section 16 needs to be reversed as per Rule 43 of the CGST Rules, 2017. Distributable goods, procured by the applicant and used for sales promotion - HELD THAT:- They are given free of cost and there is no consideration for such transfer. The stock register of the applicant would be credited with these materials when they are procured and debited when they are distributed and hence they would be no longer in the accounts of the applicant - applicant, in the instant case, disposes / issues the distributable goods free of cost i.e, without any consideration to two categories i.e. Franchisees (Exclusive Show Rooms) and other shops / retailers, Ävhere all brands are sold (Retailers / All brands stores). In the instant case, with regard to the first category i.e. the Franchisees of the applicant are associated in the business of one another and hence are related persons. It is an admitted fact that the applicant disposes the distributable goods by way of gifts and free supplies to promote business and hence are to be treated as supplies in terms of para 2 of Schedule I to the CGST Act 2017. Thus the applicant need to discharge applicable GST on such supplies and thereby is entitled to avail input tax credit on the said supply of goods - The second category is that of all brands stores and they do not fall under the related persons to the applicant. Further the above Circular also addresses applicant's contention that items supplied for promotion of the brand is as per contractual obligation & hence can't be called as gifts. The Circular makes it abundantly clear that these items would be called gifts. Hence in this case, since the persons to whom the distributable goods are given are not related parties and are distinct persons and are not employees of the applicant, the transaction is not coming under the scope of supply and hence the applicant is not eligible to claim input tax credit on the same.
|