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TMI Blog2023 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing of cement. 3. The applicant has sought advance ruling in respect of the following question:- 1. Whether the applicant's obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as "goods disposed of by way of gift" and Input Tax Credit ("ITC") on the same would be restricted as provided under the Section 17(5)(h) of the CGST Act, 2017? 2. Whether the applicant's obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a "permanent transfer or disposal of business assets where ITC has been availed on such assets" and would be treated as a supply even if made without consideration and be subjected to GST under SI. No. 1 of the Schedule-I to the CGST Act, 2017? 3. Whether the applicant's obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a supply under Section 7 of the CGST Act, 2017? 4. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shall be made in the form of credit notes on Quarterly/Half Yearly / Yearly 5.8 As per the "Monthly/Quarterly Quantity Discount Scheme", in case any dealer from Karnataka purchases 500 MT of OPC from the Company, a discount worth Rs. 13/- per bag shall be credited to his account. Higher the cement quantity purchased by the dealer, higher will be the discount earned by dealer resulting into higher eligibility of gold coins. At the end of the quarter, the Company purchases gold coins worth the total discount credited to the account of the dealer and distributes the said gold coins to the dealer as per the agreed terms of the promotional scheme. The invoice for the said gold coins is raised in the name of the Company and accordingly, ITC of the GST paid on the gold coins is claimed by the Company. 5.9 In case of "Monthly/Quarterly Quantity Discount Scheme" and "Dealer White Goods Scheme" the benefit provided to the dealer is determined based on the amount credited to the account of the dealer which in turn is based on the quantity and the grade of cement purchased by such dealer. Subsequently, to pass on the benefit of such credit lying the dealer's account, the company distribute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposed of by way of gift of free samples". As per the said provision, credit is not available in respect of goods which are given as gifts and free samples. 6.1.4 As mentioned above, in case of gold coins and white goods distributed to the dealers, the same are distributed based on the quantity lifted by the dealers and the amount of discount the said dealer is eligible for. This ensures that the dealers are motivated to purchase higher quantity of cement in order to be eligible for the discount and in turn gold coins and white goods. This would result in the enhancement of the sales of the company. 6.1.5 The applicant states that as per the provisions of the Act, every registered person is entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. 6.1.6 The applicant submits that in the instant case, the gold coins and white goods are provided to the dealers in furtherance of business so as to promote and enhance the sales of the company. Thus, ITC should be allowed of the GST paid on procurement of gold coins and white goods which are given to dealers as par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITC on gold coins and white goods distributed to the dealers as the same are incurred as in the course or furtherance of business and they cannot be regarded as 'gifts' for the reasons mentioned above. 6.3 Gold coins and white goods distributed as part of the promotion schemes cannot be regarded as permanent transfer or disposal of business asset where ITC has been availed on such assets 6.3.1 The SI. No. 1 of the Schedule-I of the Act states that "Permanent transfer or disposal of business assets where input tax credit has been availed on such assets" shall be regarded as supply even if made without a consideration. Thus, it is imperative to understand the term "Business Assets" in order to conclude whether the gold coins and white goods issued to dealers would fall under the said entry. 6.3.2 The term "assets" is defined in various Dictionaries as below:- Black" Law Dictionary, Ninth Edition - "The entries on a balance sheet showing the items of property owned, including cash, inventory, equipment, real estate, accounts receivable, and goodwill. " Online Merriam Webster Dictionary - "the items on a balance sheet showing the book value of property owned." 6.3.3 The General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Himani Ltd., 2011 (263) E.L.T. 335 (All.) (d) Vicco Laboratories, 2005 (179) E.L.T. 17 (S.C.) (e) Bella Premier Happy Hygiene Care Pvt. Ltd., 2018(17) G.S.T.L. 603 (KAR) 6.3.7 In view of the above, an asset in common parlance and trade understanding are considered as items of the balance sheet. 6.3.8 Further, Schedule-II of the Act provides the list of activities or transactions to be treated as supply of goods or supply of services. Entry (4) of the said schedule pertains to the "transfer of business assets". Clause (a) of entry (4) provides that "where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to from part of those assets, such transfer or disposal is a supply of goods." 6.3.9 It is evident from the aforesaid clause also that only those goods which are items of balance sheet of the company are considered as supply of goods and not all goods for the purpose of clause (a) of entry 4 of Schedule II of the Act. 6.3.10 Therefore, the term business asset mentioned under the entry 1 of Schedule-I shall be read with the clause (a) of entry 4 of schedule II, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business asset" used in Schedule-I also includes the inventory of the company then in such case any goods issued to any unrelated person without consideration would be deemed supply under SI. No. 1 of the Schedule-I. In such a case, the main crux of term supply for a consideration under Section 7 of the Act would get defeated thereby rendering Section 7 redundant. This would lead to a situation where anything and everything issued whether for a consideration or not would be subjected to GST under SI. No. 1 of the Schedule-I of the Act, which is not the intention of the GST law. 6.3.16 Based on the above submissions, gold coins and white goods distributed cannot be regarded as "Business Assets" and therefore the distribution of gold coins and white goods to dealers as part of promotional schemes cannot be regarded permanent transfer or disposal of business assets where ITC has been claimed on such assets. 6.4 Gold coins and white goods distributed to dealers as part of the promotional scheme cannot be regarded as supply under section 7 of the act 6.4.1 With regards to gold coins and white goods issued to dealers being treated as a supply under Section 7 of the Act, it is pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply; 6.4.4 Section 2(31) of the Act as above provides "consideration" an inclusive definition as any payment (in money or otherwise) or monetary value of any act or forbearance in respect of, in response to, or for the inducement of, the supply. It is submitted that "supply for consideration" as envisaged under Section 7 of the Act presupposes the existence of a reciprocal relationship between the supplier and recipient, where the supplier makes the supply in return for the consideration in money or otherwise flowing from the recipient. In other words, the nexus between the supply and consideration is sine qua non to constitute the taxable event of supply. 6.4.5 In the instant case, there is no consideration received by the applicant from the dealers for the gold coins and white goods distributed to them. Therefore, based on the above submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Discount (QD) Volume/ Slabs (MT/Month) Discount (Rs./Bag) North Karnataka & South Karnataka 60 to 300 3.50 > 300 to 750 4.00 > 750 5.00 Quaterly Quantity Discount (QD) Product Discount (Rs./Bag) North Karnataka & South Karnataka PPC 4.00 The additional guidelines in respect of the quarterly QD Scheme are,- a. Dealers with >90 days outstanding shall not be eligible for this discount b. On Strongcrete volume Rs. 5 per bag will be disbursed in the form of Gold c. Disbursement shall be made in the form of credit notes on Quarterly/ Half Yearly/ Yearly. Further, the applicant has stated that as part of the "Dealer White Goods Scheme" specific slabs have been identified for different markets/ locations specifying the quantity to be purchased during scheme period, by the dealer in order to avail the benefit of the scheme. The operational guidelines of the scheme are as follows Slabs Points Slab (Scheme Period) Incentive Item (Option 1) Incentive Item (Option 2) Incentive Item (Option 3) Slab 1 675 to 900 Samsung Convection Microwave Oven Godrej Digital Safe Locker Gold Slab 2 901 to 1800 Voltas / Blue Star Split AC (1.5 ton) Sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd question, the applicant has stated that the distribution of gold coins and white goods cannot be regarded as permanent transfer of disposal of business assets as the said restriction is in respect of only those assets which are capitalized in the books of accounts and not in respect of revenue expenditure. Further, he states that the said distribution cannot be regarded as a supply under section 7 of the Act as there is no consideration received by the applicant for such gold coins and white goods. 12. In this regard, it is pertinent to note that the scope of supply is explained in Section 7(1) of the CGST Act and the same reads as under:- "Section 7: Scope of Supply.- (1) For the purposes of this Act, the expression "supply" includes - (a) All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) ........................ (b) ......................... (c) the activities specified in Schedule I, made or agreed to be made without a consideration." It is not in doubt that the white goods or gol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss assets where input tax credit has been availed on such assets" would cover the activity of distribution of white goods or gold as incentive and hence would be treated as a supply of such goods as per clause (c) of Section 7(1) of the CGST Act. 13. Coming to the first question as to whether the input tax credit of the tax paid on the gold coins and white goods are admissible or not, the following points are noted: 13.1 Input tax credit is defined in clause (63) of section 2 of the CGST Act as under: "input tax credit means the credit of input tax" 13.2 Input tax is defined in clause (62) of section 2 of the CGST Act as under: "input tax credit in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes......." It is no dispute that the applicant is a registered and is effecting inward supplies of gold coins and white goods to be distributed as incentive and GST is charged in the invoices issued to him. By the above definition, any amount of tax charged shall be covered under the definition of input tax credit. 13.3 Sub-sections (1) and (2) of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of gift or free samples". Since the goods are not given as gifts this clause is not applicable to the present transaction. In view of the above, the input tax credit so claimed under section 16 does not become unavailable under section 17(5)(h) of the CGST Act. 15. Given that the distribution of gold coins and white goods are treated as supplies and attracts the tax liability on such distribution, the input tax credit is not restricted under any of the provisions of Section 17 more so under section 17(5)(h) of the CGST Act. 16. In view of the foregoing, we pass the following RULING 1. The applicant's obligation to issue gold coins and white goods to the dealers/ customers upon achieving the stipulated lifting of the material/ purchase target during the scheme period would not be regarded as "goods disposed of by way of gift" and Input tax credit would not be restricted under the Section 17(5)(h) of the CGST Act, 2017. 2. The applicant's obligation to issue gold coins and white goods to the dealers/ customers upon achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a "permanent transfer or disposal of business as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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