A GST advance decision body has concluded that businesses may claim input tax credits on things including white goods and gold coins that were purchased for distribution to dealers if they met pre-determined sales objectives as part of promotional campaigns. The Karnataka-bench of the AAR (Authority for Advance Ruling) held that since buying white goods or gold coins for the purpose of providing a dealer incentive constitutes a supply, ITC may be claimed on taxes paid for such purchases.
In order to determine whether ITC may be claimed on the distribution of gold coins and white products to its dealers upon reaching a certain objective set under the plan, Orient Cement Ltd. addressed the AAR. The firm also provides a variety of promotional programs, such as the “Monthly/Quarterly Quantity Discount Scheme” and others.
The firm is able to meet its sales and collection goals thanks to the aforementioned sales promotion plan. The AAR stated that, in accordance with the agreement established between himself and the beneficiaries, the applicant issuing these gold coins and white items thus acquired as incentives. It is only provided once a number of requirements and criteria have been met.
Gifts are things that are given unconditionally, hence they are not included in the definition of gifts, the statement said.
According to the AAR’s order dated August 24, the applicant’s obligation to provide dealers and customers with white goods and gold coins upon reaching the required 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.
According to EY Tax Partner Saurabh Agarwal, the Advance Ruling Authority of Karnataka ruled in the case of Orient Cement Ltd. that the credit on inputs received for promotional expenses, such as giving away gold coins or Godrej digital safe lockers to dealers, shouldn’t be considered a gift because it is conditional and non-voluntary.
Additionally, it makes it clear that the distribution of promotional materials should be regarded as a supply under Schedule 1, or the permanent transfer or disposal of company assets, where an input tax credit has been claimed on such assets, even if it is done without receiving anything in return.
This decision conflicts with other rulings, thus the business should wait for further information on this from the GST Council, according to Agarwal. Abhishek Jain, partner at KPMG and national head of indirect taxes, said that this decision supports the distinction between gifts and target-driven promotional items and permits input tax credit on such presents.
Separately, Jain stated, “With opposing Advance Rulings (where it has been deemed a gift and ITC has been denied) and various on-the-ground stances by adjudication authorities, the government should consider releasing a proactive clarification on the abovementioned problem to prevent unjustified arguments.