TMI Blog2023 (10) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... level of business as a consideration for the goods to be supplied by him. The applicant is making supply of white goods and gold to his dealers or stockiest in return for the dealers or stockiest attaining a threshold of sales indicated in the scheme and therefore, the value of white goods and gold supplied by him are for the act of achieving this threshold and therefore taxable in his hands. The value of the goods supply is determined under Section 15 of the GST Act read with Rule 30 of the CGST Rules. - SRI S.V. KASIVISWESWARA RAO, AND SRI SAHILINAMDAR, I.R.S., MEMBER [ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE TEALANGANA GOODS AND SERVICES TAX ACT, 2017.] ****** 1. M/s. Orient Cement Limited, 5-9-22/57/D, 3rd Floor, GP Birla Centre, Adarsh Nagar, Hyderabad, Telangana-500063 (36AABCO5420A1Z2) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules. 2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rterly Quantity Discount Scheme , specific slabs has been identified for different markets/locations specifying the quantity to be purchased, on a monthly basis, by the dealer in order to avail the benefit of the scheme. 6. That as part of the Dealer White Goods Scheme specific slabs has 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. 7. That in the case any dealer from Telangana purchases 500 MT of OPC from the Company, a discount worth Rs. 9/- 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 distribute the said gold coins to the dealer au 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. Also the Gold coins distributed to dealers have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 SL. No. 1 of the Schedule-I to the CGST Act, 2017? iii. 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? 4.3 The applicant opined that ITC should be allowed of the GST paid on procurement of promotional products which are given to dealers as part of promotional schemes and submitted the following reasons: 1. That Section 16(1) of the Act deals with the availability of ITC to a registered person and Section 17(5) of the Act deals with Blocked credits. Therefore, it is pertinent to analyze these two provisions in detail to conclude that the ITC shall be available in respect of gold coins and white goods Issued to dealers as part of the promotional schemes 2. The applicant has drawn the attention of the AAR to the Section 16(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be reversed with respect to any goods disposed of by way of gift or free samples. However, it is important that the ambit and scope of gifts is understood properly. ii. They submitted that Gift has not been defined under the Act. Hence, reference will have to be made to other Statutes and the jurisprudence available on the Gift, as per the Gift Tax Act (18 of 1858) has been defined to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money's worth, Further reference can be made to the definition of gift in Corpus Juris Secundum, Volume 38, referred with approval by the Honorable Supreme Court in the use of Sonia Bhatia v. State of UP [1981 (3) TMI 250- Supreme Court), wherein 'gift' has been held to hit a voluntary transfer of property by one to another, without any consideration or compensation therefore A 'gift' is a gratuity and an act of generosity and does not require a consideration: if there a consideration for the transaction, it is not a gift. In the same case, it was also held that a gift is a transfer which does not contain any element of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be made without any contractual obligation. If any supply is made under a contractual obligation it cannot be termed as a 'gift'. b. Supply must be made without any consideration in money or money's worth. Hence, supplies made out of love and affection or such other non legal considerations can only be termed as gifts . vi. They submitted that it is indeed imperative, at this stage, to analyze the concept of promotion. The applicant submitted that the products distributed to its dealers are for promoting their brand and are in furtherance of business and thus, ITC of the GST paid on such products should be available. vii. That the Oxford dictionary has defined the term promotion as an activity that supports or encourages a cause, venture, the publicizing of a product, organization, or venture so as to increase sales or public awareness, Further, the term furtherance is defined as the advancement of a scheme or interest. In context of the term furtherance of business it means advancement of business of the company. viii. That the meaning of supply made in course or furtherance of business given in the FAQ on GST released by CBIC says-No defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quantity Discount Scheme Dealer White Goods Scheme ) given by the company is communicated to the dealers and is known to them well before they make the purchases from the company. Only upon understanding the terms and conditions of the scheme, the dealer makes the purchases and becomes eligible for the discount as per the Monthly/Quarterly Quantity Discount Scheme and Dealer White Goods Scheme. iv. That dealers who are having an outstanding balance for more than 90 days shall not be eligible for the scheme even in case, they purchase the quantity falling under the slabs mentioned under the scheme v. That, a declaration is obtained from the dealer by the company for the confirmation of the receipt of the gold coin. The said declaration states that the 'Gold' is offered in proportion to the sale the dealer has achieved as mentioned in the scheme during the period. 4.6 That 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: i. That the Sl. No. 1 of the Schedule-I of the Act states that Permanent transfer or disposal of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perating, capitalized, tangible and intangible. Business assets are itemized and valued on the asset side of the Balance sheet. vi. That the assets mean the transactions which are recorded in the balance sheet of the organisation, that in an accounting sense, the said term refers to items appearing in the balance sheet of an organization. Furthermore, in general understanding, items of the balance sheet are only considered as assets. Various courts have consistently held that the meaning of a term not defined under the statute, can be derived from the meaning assigned to it in trade and industry. In this regard, reliance is placed on the following decisions. (a) Dunlop India v. Uol, 1983 (13) ELT 1566 (SC) (b) Pharm Aromatic Chemicals, 1997 (95) ELT 203 (Bom) (c) Himani Ltd., 2011 (263) E.L.T. 335 (All) (d) Vicco Laboratories, 2005 (179) B.L.T. 17 (S.C.) (e) Bella Premier Happy Hygiene Care Put. Ltd., 2018(17) GS.TL 603 (KAR) vii. That In view of the above, an asset in common parlance and trade understanding are considered as items of the balance sheet. viii. That, Schedule-II of the Act provides the list of activities or transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer or disposal of business assets . If the intention of the legislature was to tax all types of goods including the capital goods under the aforesaid entry 1, then the legislature would have used the goods which are available under entry 2 and 3. However, the legislature intentionally used the term business asset and therefore it is evident that the intention of the legislature was to restrict the scope of said entry to the business asset which is an item of balance sheet. Therefore, it is abundantly clear that the intention of the legislature is to apply the entry 1 of the schedule I only to the business assets which are item of the balance sheet and not to all the goods. xvi. That the term assets also includes inventory of the business. Therefore, even if it is assumed that the term 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 supplied under Sl. No. 1 of the Schedule-L. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. vi. That in their 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 submissions, the gold coins and white goods issued to dealers as part of the discount / Incentive schemes cannot be regarded as supply under Section 7 of the Act. In view of the above submissions, the Applicant requested a ruling as under: 1. That 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 not be regarded as goods disposed of by way of gift and Input Tax Credit (ITC) on the same would not be restricted under the Section 17(5)(h) of the CGST Act, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such assets and would be treated as a supply even if made without consideration and be subjected to GST under Sl. 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/ customers 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? 6. PERSONAL HEARING: The Authorized representatives of the unit namely Sri. Ashwani Pahwa, CA AR and Smt. Megha Agarwal, CA attended the personal hearing held on 20.03.2023. The authorized representatives reiterated their averments in the application. Further, the Authorized Representative/Applicant M/s. Orient Cement Limited, Mancherial, reiterated that their case /Similar Case is not pending in any proceedings in the applicant s case under any of the provision of the Act and have not already decided in any proceedings in the applicant s case under any of the provisions of the Act. 7. DISCUSSION FINDINGS: The applicant is transferring different Goods to its dealers as incentives for achieving their sales targets. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a vehicle or gold. The points are nothing but the various growth percentages achieved by them in different categories of their sales centers. This scheme has a monthly bonus calculator to add bonus points where ever the growth over the same month compare to previous year is record. Similarly the Scheme also has a penalty calculator to reduce the number of points earned for the de-growth recording by such stockiest or dealers in any particular month. Accordingly, the dealer will receive goods in proportion to the net points scored by him by selling cement. b) Thus, the Scheme induces the Stockiest or dealers to achieve higher growth in their sales month on month, year over year so that they will be eligible to receive quantified incentives. The incentives are given not uniformly but according to the Point Slabs in which such a stockiest point. Therefore, the points achieved by the stockiest or the dealer will determine the type of incentive they are going to receive. Thus, the goods received as incentive are in proportion to the net points gained by the dealer relatable to the quantity of cement sold by them. c) The Section 7 of the GST Act covers transactions s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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