GST on Gold Coins, White Goods and Discount Coupons
GST on Gold Coins, White Goods and Discount Coupons: In a significant ruling, the authority for advance rulings (AAR) of Telangana has clarified that the distribution of gold coins, white goods, and discount coupons as incentives for sales would be treated as a supply of goods, making them subject to Goods and Services Tax (GST). Furthermore, the ruling allows businesses to claim Input Tax Credit (ITC) on the tax paid for these incentives.
Background
This ruling carries significance due to Section 17(5)(h) of the Central GST (CGST) Act, which restricts the eligibility to claim ITC on gifts or free samples. Orient Cement Limited, a Telangana-based company, often provides various incentives, including gold coins, white goods, and discount coupons, to its dealers and customers who meet specific sales targets or contribute to the company’s growth. Orient Cement argued that these incentives should not be classified as gifts since they are earned based on the terms and conditions of various promotional schemes.
AAR’s Decision
The AAR’s ruling addressed Orient Cement’s queries and offered some crucial insights. Firstly, it affirmed that these transactions qualify for Input Tax Credit, permitting businesses to offset the GST paid on these incentives against their tax liabilities. However, the AAR disagreed with Orient Cement’s position that these incentives should not be considered a supply, reiterating that the GST is imposed on the supply of goods and services, and these incentives are indeed a form of consideration.
Balanced Judgment
In summary, the AAR’s decision strikes a balance. On one hand, it supports the company’s claim that distributing gold coins and white goods as sales incentives should not be classified as gifts, allowing businesses to continue offering these incentives without ITC restrictions. However, it also underscores that the monetary value associated with these incentives, provided in response to specific sales targets or achievements, qualifies as consideration, thus subjecting them to GST.
Conclusion
The AAR Telangana ruling provides clarity on the treatment of incentives like gold coins, white goods, and discount coupons within the GST framework. While it acknowledges that these incentives aren’t gifts, it affirms that they are indeed supplies subject to GST. This ruling can guide businesses in structuring their sales promotion schemes and handling GST implications efficiently. It is crucial for businesses to stay informed about such rulings to ensure compliance with GST regulations and maximize their tax benefits.
Note: As per section 17(5) 0f CGST Act, ITC is not available in respect of the followings:
(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used-
(i) for making the following taxable supplies, namely:
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available-
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged-
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
[Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation: For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.
Explanation: For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
To Access the Ruling of Telangana State AAR on “Applicability of ITC on Construction of shed using pre-fabricated technology” CLICK HERE
To Access the Article ” Cancellation of GST Registration can solely occur u/s.29 r.w Rule 21-Allahabad HC Verdict” CLICK HERE
CBDT Notification No. 91/2023 Dt. 19 October 2023: New Rule 16D and New Form 56F