TMI Blog2021 (4) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... n termination of the agreements, it is the responsibility of the EBOs and distributors to return the promotional materials to the Appellant. This fact was reiterated by the authorised representative during the course of the personal hearing when a specific query in this regard was posed by the Member. Therefore, it is evident that the title of the promotional items remains with the Appellant and is not transferred to the EBO or the distributor. In terms of Section 17(2) of the CGST Act, where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. In other words, Section 17(2) 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case: 3. The Appellant is engaged in the manufacture, distribution and marketing of Knitted and Woven Garments under the brand name JOCKEY and swimwear and swimming equipment under the brand name SPEEDO . The Appellant also gets the garments manufactured from job workers. The Appellant market/sell their products through their franchisees and distributors/dealers. To promote their brands and to market their products, the Appellant is availing advertisement agency services such as ads in the print media, electronic media, outdoor advertising, etc and also procuring the promotional items and marketing material such as display boards, uniforms to staff, posters, gifts and hoardings, etc to use in displaying their products at the point of purchase i.e Exclusive Brand Operator's showrooms and retail show rooms. The Appellant is paying GST on the procurement of the advertisement services and promotional products/marketing materials. 4. In this regard, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question: Whether in the facts and circumstances of the case the Promotional Products/Materials Marketing items us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to effectively make known their range of products to the ultimate customers, the Appellant is procuring display items such as stands, hangers, cupboards, ladders, etc and sending these to the Exclusive Brand Operators and Retailers to display their branded products; that to promote their products at retail level and to help the customers in identifying the exclusive brand operator and retailer of the Appellant's brand in the market, the Appellant is getting display boards manufactured with their brand logo and name of the exclusive brand operators and retailers; that to help customers in recognizing sales girls and boys of their brands at the point of purchase i.e showrooms of their exclusive brand operator and retailers and at the exhibition centers, the Appellant is providing the uniforms to the sales girls and boys; that to attract the customers at the point of purchases, the Appellant gets posters printed in respect of newly introduced products and provides the same to the exclusive brand operators and retailers; that to enhance the goodwill of their brands and maintain customer loyalty, the Appellant procures pens, diaries, table calendars, etc with affixation of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cost to their distributors/dealers; that they are distributing the same with the obligation to promote their brands and market their products and hence the same cannot be construed as gift covered under Section 17(5)(h) of the CGST Act. They submitted that they are sending such promotional / marketing items without transferring the title over the same to their franchisees and to their distributors/dealers not for their personal use but with obligation to promote their brand and market their products. They submitted that there is a difference between disposing of goods by way of gift and using those items in promotion and marketing activity; that in gift there will not be any further obligation on the part of the person who accepts the gift but in the case of promotional / marketing items sent by the Appellant, there is an obligation on the part of the franchisees or distributors/dealers to use the same in promoting the brand. 6.5. The Appellant submitted that they are sending the promotional/marketing items under a delivery challan to their point of purchase i.e their franchisee's showrooms and their distributor/dealer's showrooms for use in promoting their brand; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside and they be permitted to avail input tax credit on the promotional/marketing items used in promoting their brands by treating the same s inputs . PERSONAL HEARING 7. The appellant was granted a virtual hearing on 8th April 2021. The hearing was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant was represented by Shri. K.S Kamalakara, Cost Accountant and Authorised representative. 7.1. The authorised representative explained the activity undertaken by the Appellant with regard to brand promotion. He submitted that, in order to display their products at the point of purchase and to effectively make known their range of products to the ultimate customers, the Appellant is procuring display items such as display stands/boards, posters, outdoor hoardings, uniforms for staff, hangers, cupboards, ladders, etc and these are sent to the Exclusive Brand Operators and Retailers to display their branded products. In addition, the Appellant is also procuring items such as pens, diaries, table calendars, etc embossed with their brand name and the same are distributed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the Members of that Authority; that accordingly, the case relied upon will not have any persuasive value. This was accepted by the authorised representative of the Appellant 7.4. The authorised representative also submitted that the franchisees and the retailers are independent entities and only have representational right to promote their brand products; that the franchisees and retailers cannot be termed as 'related persons' as wrongly held by the lower Authority. In view of the above submissions, it was prayed that all the items i.e both the display / promotional items and the distributable items engraved with their logo, be treated as input and allowed as input tax credit. 8. The Appellant also furnished additional written submission at the time of personal hearing as well as on 12-04-2021 wherein they submitted that the Advance Ruling Authority traversed beyond the question on which ruling was sought for which is in violation of Section 98(4) of the CGST Act and not sustainable in law. They also submitted that they have not capitalised the materials like display boards, posters, outdoor hoardings, etc sent to their franchisees and distributors in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o procures certain give away items such as carry bags, calendars, dairies, leather bags, pens with their brand name embossed / engraved which are distributed to the showrooms and retailers for giving away to customers who purchase their products. In addition, the Appellant also procures advertising services for advertising their products in the print media, electronic media and outdoor advertising. All the above items and services are procured on payment of GST and the Appellant avails input tax credit of the tax paid on the same. 11. The Appellant had applied for a ruling on whether the promotional goods purchased for use in their showrooms for displaying their products and the items distributed to their showrooms, distributors and retailers for giving away to customers, can be treated as 'inputs' on which input tax credit can be availed. The lower Authority held that the items which are sent to the showrooms for use in the display of the Appellant's products without transferring the ownership, are to be treated as capital goods and not inputs; that the GST paid on the procurement of such items is eligible for input tax credit. However, when these items reach the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and retailors under cover of a delivery challan. In certain cases, these items are sent directly from the supplier's premises to the point of purchase on a bill to ship to basis. The promotional items are supplied by the Appellant free of cost to the franchisee / distributor / retailer as per the terms of the agreement and the title of the said items remains with the Appellant and the same is not transferred to the franchisee or distributor or retailer. These promotional items continue to remain with the franchisee / distributor / retailer until the termination of the agreement between the Appellant and the franchisee / distributor / retailer. The Appellant is availing input tax credit on the procurement of these promotional items by treating them as inputs . b) They procure items such as carry bags, calendars, dairies, pens, etc with their brand name embossed/engraved from various suppliers on payment of GST and distribute these items free of cost to the showrooms of their franchisees, distributors and retailers for the purpose of giving away to customers who buy their products. In this case also, the title of the goods remains with the Appellant and the Appellant is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed representative during the course of the personal hearing when a specific query in this regard was posed by the Member. Therefore, it is evident that 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 Appellant has also urged before us that these promotional items are not capitalised 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. We therefore, disagree with the finding of the lower Authority and hold that 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. 16. As regards the eligibility of input tax credit on these promotional items, the same is governed by the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act. In terms of Section 17(2) of the CGST Act, where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. In other words, Section 17(2) 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 above provisions, we hold that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the said decision and observe that the Members of the Maharashtra Appellate Authority differed in their decision on the points in appeal and hence, in terms of Section 101(3) of the CGST Act, it was deemed that no advance ruling can be issued in respect of the question under appeal. The Appellant in this case has placed reliance only on the opinion expressed of the Member (CGST) in Sanofi India Ltd case. In view of the fact that there is no ruling in the appeal filed by M/s Sanofi India Ltd, the case does not have any persuasive value. 19. In view of the above discussion, we pass the following order ORDER We set aside the ruling No. KAR ADRG 54/2020 dated 15/12/2020 passed by the Advance Ruling Authority and answer the question of the Appellant as follows: The Promotional Products/Materials Marketing items used by the Appellant in promoting their brand marketing their products can be considered as inputs as defined in Section 2(59) of the CGST Act, 2017. 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, 2017. The appeal filed by M/s Page Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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