Businesses can claim input tax credit on items, such as gold coins and white goods, procured for distribution to dealers upon achieving pre-specified sales targets as part of promotional schemes, a GST advance ruling authority has ruled.

The Karnataka-bench of the AAR (Authority for Advance Ruling) ruled that ITC can be availed on taxes paid for the procurement of white goods or gold coins for the purpose of incentive to dealer as it is a supply. Orient Cement Ltd had approached the AAR seeking a ruling on whether ITC can be claimed on the distribution of gold coins and white goods to its dealers upon achieving a specified target fixed under the scheme.

The company also offers various promotional schemes “Monthly/ Quarterly Quantity Discount Scheme”, etc. The said sales promotion scheme helps the company in achieving their sales and collection targets. The AAR noted that the applicant is issuing these gold coins and white goods so procured as incentives as per the agreement reached between himself and the recipients. It is only issued subject to the fulfilment of certain conditions and stipulations. “Gift is something which is given without any conditions and stipulations and hence the same cannot be covered under the scope of ‘gift’,” it said.

The applicant’s obligation to issue gold coins and white goods to the dealers/ customers upon achieving the stipulated lifting of the material/purchase target during the scheme term would not be regarded as “goods disposed of by way of gift” and input tax credit would not be restricted, the AAR said in its August 24 order.

EY tax partner Saurabh Agarwal said in the matter of Orient Cement Ltd, the Advance Ruling Authority of Karnataka has held that the credit on inputs received for promotional expenses, like distributing of gold coins, Godrej digital safe lockers etc., to dealers should not be categorized as gifts as it is associated with certain terms and not voluntary. It clarifies that the distribution of promotional materials should be considered a supply, even if done without any consideration, falling under Schedule 1 i.e. permanent transfer or disposal of business assets when input tax credit has been claimed on those assets.