ITC can be availed on distribution of promotional products to distributors

THE AUTHORITY OF ADVANCE RULING
IN KARNATAKA

The Question and Ruling as follows :

“Whether in the facts and circumstances of the case, the promotional products/ Materials and Marketing Items used by the Applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under section 2(59) of the CGST Act, 2017 and GST paid on the same can be availed as imput tax credit in terms of section 16 of the CGST Act, 2017?”

FINDINGS & DISCUSSIONS

10. We have cnsidered the submissions made by the applicant in their application for advance ruling as well as the submissions made by him when he appeared for the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, relevant facts.

10.1 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

11. The First issue before us in the promotional products and materials and marketing items, which are used in promotion of the brand and marketing of their products, are Inputs as defined in section 2(59) of the CGST Act 2017 or not. In this regard, the following are noted:

11.1 The applicant is procuring various materials classified as promotional material and is distributing them to the distributers and franchises free of cost. The applicant states that they are supplied free of cost and are to be used only for the promotion of their brand and products in the showrooms of the distributors and retailers. They have stated that they are supplying uniforms for the sales personnel of the distributors and franchisees to be worn by them at their outlets and even this is for sales promotions. The applicant has classified them under the following heads:

a) Display Items

b) Display Boards for Retailers

c) Uniforms for Sales Personnel

d) Posters

e) Gifts for brand operators, retailers, staff and sales personnel at outlets and also to customers

f) Outdoor Hoardings

g) Carry bags

11.2 The contention of the applicant is that these are all procured by them either as goods or as services in the course furtherance of business and hence are inputs and input services.

11.3 The applicant states that some of the materials, like display boards, Posters, Outdoor hoardings, remain in his own account and are treated as capital goods. There is no transfer of ownership of these materials to his franchisees, distributors and retailers and hence there is no sale involved in them. Further, it is also seen that these materials have no direct correlation on the amount of sales effected and are only for display in the premises of the franchisees, distributors and retailers and they remain the property of the applicant.The applicant does not show any evidence of these returned back after their effective use.

11.4 Further, the applicant state the uniforms, gifts and carrybags are provided to the retailers, distributors and franchisees to be used by them or give them free of cost to the purchasers of their materials. Hence they are promotional materials to attract and encourage sales of their goods and hence are expenses in his accounts. In this case, the goods donot remain in the account of the applicant and is transferred to the accounts of the retailers, distributors and franchisees, with a condition that they have to be given free of cost to the ultimate consumers, i.e. sales personnel in case of uniforms, personnel and customers in case of gifts and to the customers in case of carry bags.

RULING

1. The ITC on GST paid on the procurement of the “distributable” products which are distributed to the distributors, franchisees is allowed as the said distribution amount to supply to the related parties which is exigible to GST. Further the said distribution to the retailers for their use cannot be claimed as gifts to the retailers or to their customers free of cost and hence ITC of GST paid on such procurement is not allowed as per Section 17(5) of the GST Acts.

2. The GST paid on the procurement of “non-distributable” products qualify as capital goods and not as “inputs” and the applicant is eligible to claim input tax credit on their procurement, but in case if they are disposed by writing off or destruction or lost, then the same needs to be reversed under Section 16 of the CGST Act, 2017 read with Rule 43 of the CGST Rules, 2017.