No ITC on Inward supplies of Goods and Services given as Incentives in the form of Gifts: AAR [Read Order]

The Authority of Advance Ruling in Karnataka has ruled that, the applicant is not eligible to avail input tax credit ( ITC ) on the inward supplies of goods and services which are attributable to the incentives provided in the form of gifts of goods and services to the painters and dealers and other persons under the CGST / SGST / IGST Act.

The Applicant M/s Surfa Coats (India)  is a Private Limited Company and is registered under the Goods and Services Tax Act, 2017.

The AAR was considering the Question, Whether the applicant is eligible to claim the GST Input tax credit on the items purchased for the furtherance of business?

The applicant states that they are into the business of manufacturing decorative paints meant for interiors as well as exterior surfaces and have three manufacturing plants at Peenya, Bengaluru to cater the market needs from time to time. The manufactured paints are marketed through their sales offices spread across in Southern and Western India. The applicant frames incentive schemes, depending on the market conditions, to motivate dealers to lift their products. The titles of the schemes read as Painters Schemes, Dealers Incentive Schemes, Gold Schemes, Foreign and Local Trip Schemes etc.. The incentives are given subject to fulfilment of terms laid down in each such scheme.

The AAR observed that, “in order to promote the business, gives incentives/ gifts to those persons who assist in the marketing of the products i.e. dealers, painters etc., in the form of goods and services, which are duly tax suffered 86 procured from other registered suppliers. The said goods/services are distributed to the persons as gifts/ incentives without receiving any consideration for the same. Hence the goods and services so procured and disposed of/ distributed as incentives/ gifts are disposed without any consideration and hence do not qualify to be a supply in terms of Section 7 of the CGST Act. Further, no GST is being paid on disposal of the said gift items”.