Karnataka AAAR in case of M/s PAGE INDUSTRIES LTD [ORDER NO.KAR/AAAR/05/2021, dated: 16.04.2021] on appeal field by the appellant under section 100 of CGST Act 2017 against the Advance Ruling Order No. KAR ADRG 54/2020 passed his ruling after considering the issue involved, on which advance ruling is sought by the applicant, relevant facts, and interpretation of the law.
The Appellant is a manufacturer of knitted and woven garments under the brand name "JOCKEY" and swimwear and swimming equipment under the brand name "SPEEDO". The goods manufactured by the Appellant are sold through their own outlets and also through their distributors and retail dealers. For the purpose of promoting their brand and products, the Appellant procures various items such as gondola racks, wall shelves, and panels, mannequins, storage units, hangers, signages, posters, display stands, etc. which are used in the showrooms for the display of their products as well as for advertising their products. Further, the Appellant also procures certain give-away items such as carry bags, calendars, diaries, leather bags, pens with their brand name embossed/engraved which are distributed to the showrooms and retailers for giving away to customers who purchase their products. In addition, the Appellant also procures advertising services for advertising their products in print media, electronic media, and outdoor advertising. All the above items and services are procured on payment of GST and the Appellant avails input tax credit of the tax paid on the same.
"Whether the Promotional Products/Materials & Marketing items used by the Appellant in promoting their brand & marketing their products can be considered as "inputs" as defined in 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 or not?"
Interpretation of law:
The term "input" is defined in Section 2(59) of the CGST Act as follows:
2(59) "input" means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
The purpose of providing the EBO/franchisees and distributors with these promotional items is to enhance the sales of their products. Thus, we have no hesitation in concluding that these promotional items are indeed used in the course or furtherance of the Appellant's business. Thus we hold that the promotional items are not capital goods but 'inputs' that are used in the course or furtherance of business.
The eligibility of input tax credit on these promotional items is governed by the provisions of Chapter V (Sections 16 to 19) of the CGST Act.
Section 16 states that a registered person shall be entitled to take an input tax credit of the tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business.
Section 7 of the CGST Act, a transaction is termed as a supply when it is made either for a consideration or the transactions specified in Schedule I of the CGST Act. One such transaction mentioned in clause (b) of Schedule I is a supply of goods or services or both made between related parties or distinct persons, in this case, we find that the franchisees and distributors are independent entities and are not related to the Appellant in any of the ways mentioned in the Explanation to Section 15 of the CGST Act. Another transaction made without consideration which amounts to a supply is mentioned in clause (a) of Schedule I and it applies to the permanent transfer and disposal of business assets where input tax credit has been availed on such assets. We have already held that these promotional items are not assets of the Appellant and hence this clause will also not be applicable to the Appellant's case. Therefore, the provision of promotional materials free of charge by the Appellant to the franchisees and distributors is neither covered within the scope of a taxable supply as defined in Section 7 of the CGST Act nor is it a supply covered under the ambit of Schedule I of the said Act. The activity of providing the promotional items can be termed as an 'non-taxable supply' as defined in Section 2(78) of the CGST Act which reads as follows: "non-taxable supply" means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.
Section 17(2) of the CGST Act provides that where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. When the goods or services or both are used towards making an exempt supply, then input tax credit is not allowed.
Section 2(47) of the CGST Act, the term 'exempt supply' also includes non-taxable supply. Thus we hold that the GST paid on the procurement of promotional items will not be eligible for input tax credit since the said supply is a non-taxable supply.
Section 17(5) of CGST Act notwithstanding the entitlement conferred by Section 16, certain goods and services and certain forms of supply, as mentioned in Section 17(5) of the CGST Act, are expressly denied input tax credit. We observe that in the case of the promotional items such as carry bags, calendars, diaries, pens, etc. embossed/engraved with the brand name and which are distributed to the EBOs/distributors/retailers for the purpose of giving away to the customers, there is no contractual obligation on the part of the Appellant to provide these promotional items for distribution. While this supply is also a non-taxable supply and ineligible for the input tax credit, there is an additional disentitlement in terms of Section 17(5)(h) which provides that goods which are disposed of by way of gift are not eligible for input tax credit even if they are used in the course or furtherance of business. The GST law has not specifically defined the term "gift". Hence the definition provided under Section 2(xii) of the Gift Tax Act defines gift as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth. Thus, it can be said that in this case, these giveaway promotional items acquires the character of gifts. Therefore, we hold that input tax credit is not eligible on the promotional items distributed as give-away items on the grounds that the same is blocked by virtue of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act.
The Promotional Products/Materials & Marketing items used by the Appellant in promoting their brand & marketing their products can be considered as "inputs" as defined in Section 2(59) of the CGST Act, 2017. However, the GST paid on the same cannot be availed as an input tax credit in view of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act, 2017
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