Authority for Advance Ruling, GST: A Division Bench of Dr Ravi Prasad M.P. (Additional Commissioner of Commercial Taxes) and MashhoodUr Rehman Farooqui (Joint Commissioner of Central Tax) addressed whether the input tax credit can be availed on the distribution of promotional products to distributors/dealer’s showrooms for the purpose of marketing the products and promoting the brand.
In the instant application, it has been stated that the applicant was engaged in the manufacture, distribution and marketing of Knitted and Woven Garments under the brand name of “Jockey”, swimwears and swimming equipment’s under the brand name “SPEEDO”.
Applicant sought advance ruling on the classification of goods and services as under:
“Whether in the facts and circumstances of the case, the promotional products/materials and Marketing Items used by the applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under Section 2(59) of the CGST Act, 2017 and GST paid on the same can be availed as input tax credit in terms of Section 16 of the CGST Act, 2017?”
Applicant submitted that as per Section 16 of the CGST Act, every registered person subject to terms and conditions specified in Section 49 of CGST Act is entitled to avail the same as “Input Tax Credit” the GST paid by him on the supply of goods or service to him, which are used or intended to be used in the cause or in furtherance of his business and same will be transferred to his electronic credit ledger.
Adding to the above submissions, the applicant stated that promotional/marketing items using by them at point of purchase i.e. showrooms or to their distributor/dealer’s showrooms is to promote their brands and made known the range of products manufactured by them.
The said promotional/marketing items are distributed for free by the applicant to promote their brand, hence the same cannot be construed as “gift” and made applicable Section 17(5)(h) of CGST Act.
Applicant add that in respect of the promotional/marketing items to their own showrooms there was neither “supply” nor there was “gift” and hence applying the provisions of Section 17(5)(h) of CGST Act, 2017 and apportioning the input tax credit should not arise.
Analysis and Decision
Promotional/marketing items sent to showrooms and to distributor/dealer’s showrooms to use in promoting their brands and market their products will amount to use of said goods in business or furtherance of the applicant’s busniess. Therefore, the same would qualify as “input” in terms of Section 2(59) of CGST Act, 2017 and GST paid on the same is entitle to avail as “input tax credit” in terms of Section 16 of CGST Act, 2017.
Bench noted that the goods were not transferred out of the accounts of the applicant and remained in the accounts of the applicant as assets, which were returnable items but the applicant did not show any proof of the said being returned to the applicant and disposed at the end of the period of usage.
In light of the above-stated scenarios, the applicant uses the goods till the goods are usable for the promotion of his business and claims depreciation on the same.
In the applicant’s opinion, the above-stated goods are covered under “input”.
AAR expressed that,
Since the ownership of the material is being retained by the applicant, they could be treated as capital goods hence needs to be capitalized in his books of accounts. The said cannot be treated as “input” since the said term excludes capital goods.
Whether input tax credit can be availed on the capital goods?
Section 16 of the GST Act provides for the eligibility for taking/availing input tax credit.
Since the applicant used or intended to use the goods and services procured in the course or furtherance of business, the applicant was entitled to take the input tax credit, subject to other provisions of the Act and hence there was no blockage attributable to Section 17(1) as the applicant used the goods in the course or furtherance of business.
- ITC on GST paid on procurement of the “distributable” products which are distributed to the distributors, franchisees is allowed as the said distribution amount to supply to related parties. The said distribution to the retailers for their use cannot be claimed as gifts to the retailers or to their customers free of cost and hence ITC of GST paid on such procurement is not allowed as per Section 17(5) of the GST Acts.
- GST paid on the procurement of “non-distributable” products qualify as capital goods and not as “inputs” and the applicant is eligible to claim input tax credit on their procurement, but in case if they are disposed of by writing off or destroyed or lost, then the same needs to be reversed under Section 16 of CGST Act, 2017 read with Rule 43 of the CGST Rules, 2017.
[Page Industries Ltd., In Re., 2020 SCC OnLine Kar AAR-GST 7, decided on 15-12-2020]