HomeCurrent affairsKarnataka AAR Allows Input Tax Credits for Promotional Gold Coins and White...

Karnataka AAR Allows Input Tax Credits for Promotional Gold Coins and White Goods

The Karnataka AAR has concluded that businesses can claim input tax credits on items like white goods and gold coins. Companies purchase these items for distribution to dealers as part of their promotional campaigns. The AAR has determined that buying white goods or gold coins to provide a dealer incentive constitutes a supply. This allows businesses to claim ITC on taxes paid for those purchases.

Orient Cement Ltd. approached the AAR to determine if they could claim ITC. This was for distributing gold coins and white products to their dealers upon reaching a specific target set under the plan. The company also provides a variety of promotional programmes, such as the “Monthly/Quarterly Quantity Discount Scheme” and others. The company can meet its sales and collection goals thanks to the aforementioned sales promotion plan.

The AAR stated that the applicant issued gold coins and white items as incentives. This was based on the agreement established between them and the recipients. It is provided only after meeting several requirements and conditions.

In its August 24 order, the AAR declared that the applicant’s obligation to provide white goods and gold coins to dealers and customers upon meeting purchase targets would not be seen as ‘goods disposed of by way of gift,’ and it would not restrict input tax credit.

EY Tax Partner Saurabh Agarwal explained that in the case of Orient Cement Ltd., the Advance Ruling Authority of Karnataka ruled against considering the credit on inputs for promotional expenses, like giving away gold coins or Godrej digital safe lockers to dealers, as a gift. This is because it is conditional and non-voluntary. Furthermore, it clarified that businesses should regard the distribution of promotional materials as a supply under Schedule 1. This applies even when businesses have claimed input tax credit on such assets and distribute them without receiving anything in return.

Agarwal stated, “This ruling contradicts with previous judgments and industry should awaits further clarification from the GST Council on this matter.”

Abhishek Jain, KPMG partner and national head of Indirect Taxes, explained that this decision supports distinguishing between gifts and target-driven promotional products. It also allows for input tax credit on such presents.

Jain suggested, “Separately, with contrary Advance Rulings (where it has been held as a gift and ITC has been disallowed) and different on-ground positions by adjudication authorities, the government could consider issuing a proactive clarification on the said issue to avoid unwarranted disputes.”

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