No input tax credit on festive offers to retailers: GST AAR

27-Oct-2021 The Times Of India GST, Authority For Advance Rulings, AAR, Input Tax Credit, ITC, Goods And Services Tax 409 Views

Mumbai: The Tamil Nadu bench of the GST Authority for Advance Rulings (AAR) has held that no Input Tax Credit (ITC) would be available to a manufacturer who has purchased goods such as Dubai tickets, gold vouchers and home appliances for rewarding retailers who meet their targets. According to the AAR, the main reason for such a stand is that rewards would be used by the retailers for their personal consumption.

While AAR rulings do not set a judicial precedent, they do have persuasive value in similar cases. During the festive season, to prop up sales, manufacturers not only provide incentives to the end consumer by way of discounts or freebies, but also offer incentives to retailers meeting set targets. Thus, manufacturers should take heed of this ruling.

In this case, GRB Dairy Foods, a private company engaged in the manufacture and supply of ghee, sweets and other products, sought a ruling on whether Goods and Services Tax (GST) paid on inputs/input services such as a trip to Dubai, gold vouchers, TV sets or air coolers purchased by it to implement the promotional scheme ‘Buy N Fly’ is eligible for ITC.

To illustrate, during the promotion period, which ran for three months and applied to sales of ready-to-eat sweets & snacks, masalas, etc, if the retailer met the target, he would be eligible for the relevant reward. For example, a turnover target of Rs 50,000 would make him eligible for an LED TV. The company illustrated that it had purchased 466 LED TV sets at a cost of nearly Rs 30 lakh. The ITC on these goods would be Rs 2.7 lakh.

ITC enables a taxpayer to set off the GST paid on products purchased by it against its own GST liability. GRB Dairy Foods submitted that it procured the reward items “in the course of its business” and it has a direct nexus with the business carried on by the company. “Marketing and business expansion is an indispensable activity of every company’s operation,” it stated. During the promotion period, sales increased by over 24%.

The AAR bench factored in a 2018 ruling given by the Maharashtra bench in the case of Biostadt India, where ITC was held to be not available on procurement of gold coins offered under a sales promotion scheme to its customers. “The credit of taxes paid on goods/services for personal consumption is explicitly restricted… The (reward) goods and services are used by the retailers and hence are for personal consumption. Thus, the applicant company is ineligible to take input tax credit on the inward supply of these goods and services,” held the AAR bench.

 

Source: The Times of India

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