The subject appeal has been filed under Section 100 (1) of the Tamilnadu Goods & Services Tax Act, 2017/Central Goods & Services Tax Act 2017 by M/s. GRB DAIRY FOODS PVT. LTD, (herein after referred as the Appellant), having their registered office at No.10 Sidco Shed Sipcot Industrial Complex, Hosur, Krishnagiri District, Tamil Nadu-635126. The appellant are registered under GST with GSTIN 33AACCG0136G1Z8. They are engaged in the business of manufacture and supply of ghee and other products. Their factory premises at Tamil Nadu and Karnataka are having separate GST registration in both the States. The product groups of the appellant are classified into ghee, masalas, instant mixes and sweets.
The products supplied by them are taxable under the Act and none of the products are either “Exempted” or “Nil rated”. They sell their products through various retail stores across the country and obtain substantial revenue from Export Sales too. With the objective of expanding the market share, the appellant stated that they had launched a sales promotional offer to enhance sales of its products; the sales promotional offer was named as ‘Buy n Fly scheme. This scheme was valid from 8th April 2019 to 8th July 2019; This appeal is filed against the Order No. 36/ARA/2021 dated 30.09.2021 passed by the Tamil Nadu State Authority for Advance ruling on the application for advance ruling filed by them.
2. The appellant has stated that as per the scheme the retailers have to purchase the eligible products from the distributor, sub-stockiest and they shall be eligible for the rewards under the scheme once the targets specified therein are achieved. This is a scheme aimed at promoting second leg sales in supply chain i.e. from super-stockiest to retailer which in turn would increase the over-all sales of the company and also the market share. This scheme was made known to retailers/supply chain in advance to ensure that the benefits of promotional activities accrues to the company. It is not a mandatory scheme for all the retail outlets rather it is left to the discretion of the retailers to participate in the scheme. As per the scheme, retail-outlets shall make efforts to maximize the sales of appellant’s products which in turn leads to increase in purchase of products by them from sub-stockiest. The retail outlets have an obligation to increase the sales of the products covered by the scheme as much as possible and once the purchase of products by retail outlets exceeds the specified limit under the scheme they automatically become eligible to the rewards/product. Broadly the obligations of the retail outlets under the ‘Buy n Fly scheme are as follows:
1. To promote the sales of appellants products which in turn leads to more purchase of products by retail outlets from sub-stockiest.
2. The retail outlet is required to maintain proper accounts/documents which indicates the purchases made by them and also sales effected by them under the scheme.
3. The rewards/product specified under the scheme do not accrue to the retailers automatically and/or they cannot claim the same as a matter of right under the scheme.
4. They cannot participate in any other sales promotion scheme(s)/marketing scheme(s) of any other third party/vendor during the tenure of the ‘Buy n Fly scheme i.e. 8th April to 8th July 2019.
The terms and conditions of the ‘Buy n Fly scheme as contained in the brochure are as follows:
As per the scheme the targets and/slabs are as below:
Turnover Criteria | ₹ 1,50,000 | ₹ 1,00,000 | ₹ 50,000 | ₹ 25,000 |
Rewards/product | Trip to Dubai | Gold Voucher | Television | Air Cooler |
As per the scheme and the slabs mentioned supra, the reward articles will be handed over by them to those retailers who achieve the target. Once the claims are submitted by the retailers, it would be scrutinized and eligible retailers under the scheme would be identified. The appellant has furnished the sample copies of the communication letter from them to eligible retail outlets. The appellant has stated that they have procured these goods and/or services i.e. Trip to Dubai, Gold voucher, Television and Air-cooler on payment of applicable GST charged by the vendor. The quantity, cost of procurement of these goods and services and related input taxes are as follows:
| Air Cooler | LED TV | Gold Voucher | Dubai trip |
Qty | 2138 | 466 | 117 | 229 |
Cost | 65,01,390 | 29,61,868 | 23,40,000 | 1,25,18,515 |
Input Taxes | ₹ 11,11,910 IGST | ₹ 2,66,568 CGST & SGST each |
| ₹ 11,730 IGST |
During the scheme period, the secondary market sales of the products i.e. purchases by the retailers stood as follows:
Sales and purchases by retailer:
Instant mix | Masala | Sweets | Snacks | Total |
4,98,02,214 | 6,26,04,105 | 1,07,85,585 | 67,43,671 | 12,99,35,575 |
The appellant has furnished sample copies of invoices received from vendor in respect of these inward supplies. The appellant has also submitted the flow of scheme in the form of flow chart as below:
Announcement of ‘Buy n Fly’ |
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Communicating the scheme, terms and conditions to retail outlets, distribution network |
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Retailers to procure the eligible products from sub-stockiest during the term of the scheme after signing their acceptance to participants. |
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GRB shall procure reward article (input/input services) from vendors which will be handed over to eligible retailers later. |
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Submission of claim by the retail outlets through sales network |
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Scrutinize the claim made by retail outlets, identify the eligible outlets and communicate the eligible reward articles. |
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Handing over reward to eligible customer outlets. |
2.3 On interpretation of law, the appellant has stated that they procured these goods and services in the course of business and it has direct nexus with the business carried on by the company/appellant; that marketing and business expansion is an indispensable activity of every company’s operations and ‘Buy n Fly scheme is a sales promotion scheme which was launched to promote the sales of GRB brand Instant mix, Masalas, ready to eat sweets and snacks; They have stated that the Trip to Dubai voucher, Gold voucher, Television and Air-cooler procured by the company will be used in its business or in the course of business by way of handing over them as rewards to the eligible retail outlets who participated in the scheme.
3. The Appellant had sought Advance Ruling on the following questions:
Whether the GST paid on inputs/input services procured by the appellant to implement the promotional scheme under the name ‘Buy n Fly is eligible for Input Tax Credit under the GST law in terms of Section 16 read with Section 17 of the CGST Act, 2017 and TNGST Act, 2017?
4. The AAR pronounced the following rulings:
The GST paid on inputs/input services procured by the appellant to implement the promotional scheme under the name ‘Buy n Fly’ is not eligible for Input Tax Credit under the GST law in terms of Section 17(5)(g) and (h) of the CGST Act, 2017 and TNGST Act, 2017.
5. Aggrieved with the above decision, the Appellant has filed the present appeal. The grounds of appeal are paraphrased as follows:
Considering this context, it is submitted that rewards such as Dubai Trip voucher, Gold voucher, TV and Air-cooler handed over to eligible retail outlets shall not fall under clause (h). Clause (h) deals with goods disposed of by way of ‘gift’ which cannot be equated to ‘rewards’. The term ‘Gift’ has not been defined under the CGST Act, 2017 and therefore it would be appropriate to refer to other enactments and judicial pronouncements in order to ascertain the meaning of the term ‘gift’.
• The term ‘Gift’ under Gift Tax Act, 1958 was defined as
‘(xii) -gift means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money’s worth, and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section’
• As per Black’s Laws Dictionary (Fourth edition):
A voluntary transfer of personal property without consideration. A voluntary conveyance of land, or transfer of goods, from one person to another, made gratuitously, and not upon any consideration of blood or money.
• As per Transfer of Property Act, 1882:
“Gift” is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.
As can be observed from the above, the main distinctions from the erstwhile Service Tax regime and the GST regime in this regard are as follows:
Although there is a minute difference in the terminology used, the aspect of personal consumption is the same under both the statutes.
It may be noted that the Hon’ble Madras High Court in the aforesaid judgement was analysing the applicability of Article 286 of the Indian Constitution as to powers of the State to levy tax on the inter-state sales.
“Article 286 of the Constitution so far as is material is as follows:
286(1). No law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of the territory of India.
EXPLANATION: For the purpose of Sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.”
All these elements of cost form the basis of fixation of the MRP. From the above it is evident that the price of the product has an element of the Advertisement and Sales Promotion Cost included and hence the consideration for the product on which GST is discharged has this element inbuilt. Generally, the objective behind running any Sales Promotion Campaign are as under
Personal Hearing
6.1 The Appellant was granted personal hearing as required under law before this Appellate Authority on 31.01.2022. The Authorized representatives of the Appellant Thiru. S. Sridharan, VP Sales & Marketing and Thiru. G.Viswanathan-CA reiterated their submissions made by them in the appeal application and stated that the appeal is against the rejection of Input Tax Credit in respect of Goods and Services used for trade promotion. They furnished additional submissions and the same was taken on record. They stated that the product costing included trade promotion expenses, gift is voluntary extension but in their case there exists a contractual obligation. Further, they stated that Section 17(5)(g) do not apply to their case as the usage test is to be applied at the stage of procurement and not at the consumer end, while interpreting the said section and section 17 (5) (h) also do not apply as there is a contractual obligation in their case and the gifts cannot be said to be given on own volition.
6.2 In the additional submissions, they have stated that as follows:
a. The reliance placed by the AAR authorities on the case relating to C. Govindarajulu Naidu & Co Vs State of Madras AIR 1953 Mad 116, (1952) 2MLJ 614 is misplaced and the judgment was delivered in context of Article 286 of the Constitution.
b. The differentiating aspects of this judgment which has been relied upon by AAR which cannot be applicable to the case on hand have been highlighted in the Grounds of Appeal filed already.
c. The language used in GST is “goods or services or both used for personal consumption and not goods or services or both for personal consumption use as provided in the Cenvat Credit Rules”
d. The test for taking the ITC is not dictated under the GST law based on the last leg of consumption but whether the input and input services are procured and used for the purpose of the business.
e. Attention of the learned members is invited to the example mentioned in the grounds of appeal.
i. The AAR has held that the promotional materials were in the nature of gifts which was given voluntarily and hence would squarely fall under the provisions of section 17(5)(h) and hence credit has to be denied.
ii. AAR has completely ignored the fact that there was a contractual obligation which was based on a scheme which was circulated to the trade in advance, sample copies of the Acceptance of the scheme by members of the trade has been furnished.
iii. Once a Contractual Obligation comes into play the giving of the promotional materials cannot be construed as a Gift.
iv. That there was consideration which was inbuilt in the pricing of the product which fact has not been denied by AAR. After accepting this position it is stated that the observation of the State Jurisdictional Authority order that the gifts /free samples was distributed without any consideration is not appropriate. Further in the same the State Jurisdictional Authority have come to a wrong conclusion that the gift was voluntary is also wrong as they have themselves stated “Since the offers are given voluntarily by the appellant on fulfillment of certain conditions these are to be treated as gifts/ rewards”
v. The reliance placed by the AAR on the Maharashtra Advance Ruling in the Matter of Biostadt India Limited has no bearing on the facts of the case before the Learned members as there is consideration on which incremental output tax has been paid and there is acceptance of the scheme by the members of the trade.
vi. It has also been established before the AAR authorities that there was incremental supplies during the period in which the scheme was operated and the taxes on such outward supplies was offered in the returns.
vii. once there is a contractual obligation coupled with consideration which fact is not denied by the AAR then the conditions for availing credit as detailed in Circular No 92/11/2019 dated 7th March 2019 have been fulfilled. viii. These promotional items was given only on achieving the targets which was stated in the Scheme and hence cannot be termed as Gift.
The various case laws in support of what constitutes a Gift form a part of the Grounds of Appeal filed already. Further the admissibility of Sales Promotion Expenses as Input Credit under the erstwhile laws has also been supported with case laws. As the grounds for denial of the ITC as espoused in the order passed by the AAR is not in line with the facts of the case it is humbly submitted before the learned members of the AAAR that they may please take all the facts on record and render justice.
Discussion and Findings
7. We have gone through the entire facts of the case, documents placed on record, Order of the Lower Authority & submissions made by the appellant before us. In this case, the appellants have sought for advance ruling as to whether the GST paid on inputs/input services procured by them to implement the promotional/ reward scheme by name called as “Buy n Fly” would be eligible for Input Tax Credit under the GST law in terms of Section 16 read with Section 17 of the GST Act. It is their contention that these goods/services do not fall under ‘gift’ (Section 17(5)(h)) as the same was not given in volition, but on contractual obligation, on their retailers achieving the targeted sales nor these goods/services called as ‘goods/services used for personal consumption (Section 17(5)(g)).
8.1 In their submissions and at the time of personal hearing it is stated that the product costing included trade promotion expenses, i.e., for arriving at M.R.P. of their manufactured products, ‘Advertisement and Sales Promotion Cost’ are included in the pricing but the actual details of the product costing was not established. We find that the appellant has also stated that there was no change in the M.R.P. and the price pre-campaign and post-campaign remains the same. It was further stated that these goods/services were purchased for furtherance of business and there was a 24% increase in sales of their products due to the scheme. Therefore the appellant pleaded that their reward scheme would not fall under gift and thereby provisions of section 17 (5) (h) would not apply to them. The appellants further contended that provisions of section 17(5)(g) of the CGST Act,2017 do not apply to them as the usage test is to be applied at the stage of procurement and not at the consumer end.
8.2 Section 16 of the CGST Act, 2017 empowers the taxpayer for entitlement of taking the tax charged on the Inputs as input tax credit on the goods or services or both supplied to him which are used or intended to be used in the course or furtherance of his business and such unbridled flow of input tax credit got restriction in section 17 of the Act. The sub-section (5) of the section 17 begin with Non-obstante clause that Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18 and hence the sub-section (5) of section 17 would independently apply and the Parliament consciously restricts the input tax credit which is a concession and not a vested right. Section 17(5) restricts the availability of the input tax credit on the goods and services and clauses (g) and (h) stipulates that the circumstances under which such input tax credit would not be available as
(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.
8.3 The clause (g) forbid the input tax credit for the goods or services used for personal consumption and the Parliament in its wisdom did not place any further restriction as to who use the goods or services or both for personal consumption and it is obvious reason that under the GST law the flow of input tax credit is allowed until its consumption and hence such personal consumption be by the appellant or by its retailers would disentitle them to avail such input tax credit. Hence the plain reading of clause (g) reveals that the goods or services or both used for personal consumption by the appellant or its retailers would make the related input tax credit unavailable for the appellant, as the retailers of the appellant ultimately consumed the goods and services provided under reward scheme and the contention that the clause (g) would be applicable to the stage of procurement use and not on the last use would be of no avail to the appellant. In the example cited by the appellant, the goods though are in the nature of the consumables for the ultimate consumer, the dealer procures for further supply of such goods and therefore he is entitled for credit on such goods but the ultimate consumer to whom the dealer supplies such goods on charging GST is not eligible for the credit of tax paid by him on purchase of such goods, in view of Section 17 (5) (g) above. In the case at hand, the appellant has not procured the goods/services for further supply but for consumption by the retailers under the scheme and hence the cited example do not apply to the facts of the case as the appellant in the case at hand becomes the ultimate consumer of the said goods/services. Though the appellant claim that the cost of the products procured for the scheme are part of the M.R.P. pricing, the appellant did not file the actual value of costing attributed to the reward scheme in the final price of the products manufactured. Also, the referred decisions except in the case of CCE Pune Vs. Dai Ichi Karkaria [1999 (112) ELT 353 (SC)] and M/s. Coca Cola India Pvt Ltd Vs. CCE Pune [2009 (8) TMI 50 (Bom- HC)] are that rendered by various Tribunals whose decisions are based on the verification of facts of the case and do not hold substantial guidance value on law. In the decisions of the Hon’ble Supreme Court and the High Court the eligibility to credit is spoken in the context of the expenditure being a part of the cost of the final product, which is assessed. In the case at hand, the actual costing which is assessed has not been substantiated to hold the expenses at hand tor which credit is claimed. It is pertinent to note that the appellant has stated that the M.R.P. remained the same both Pre and Post Campaign, which points that the goods and services distributed under the scheme were without valuable consideration.
8.4 It is interesting to note that the appellant provided rewards by way of goods and also foreign tours by providing valid air tickets and that’s why they coined the reward scheme as “Buy n Fly”. Thus what they provided in the scheme was goods and services. The provisions of the clause (h) stipulates that input tax credit would not be available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus this clause is exclusively applicable for goods. The appellant claimed that these goods were not given on own volition but on contractual obligation, for achieving the targeted sales and the product costing included the sales promotional expenses and hence they vehemently opposed to be called the transactions as gift. At the time of personal hearing, the Authorised Representative reiterated that product costing include promotional expenses but they did not file the supporting statement for the year 2019-20 during which how much of promotional expenses including that of the amount related to the reward scheme in question was factored like the amount or percentage and in its absence, the advance ruling authority would not be able to venture into the correctness of the contention of costing factored by the appellant. The jurisprudence referred to by the appellant in this context, pertains to the existing law the provisions of which by their own statements are not the same to that of GST provisions. Howsoever, the GST Provisions are explicit in as much as Section 17(5) starts with Von-Obstante’ Clause and the Act restricts the credit of tax paid on certain items as explained above.
8.5 Further, the claim that there was 24% increase in sales during period under reward scheme when compared to the same period in the previous year and that the scheme furthered the business and therefore the GST paid on the goods/services distributed under the scheme are eligible to the appellant is not acceptable in the given facts. Furtherance of business as imprinted in section 16 of the. CGST Act conveys that the inputs or input services charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business alone are entitled for taking credit. Here ‘him’ denotes the taxpayer, but the promotional rewards scheme for which inputs and input services procured by him meant for his buyers and not for his own activity like advertising the product, etc. But the fact remains that non-obstante clause in section 17(5) of the CGST Act, 2017 would make the argument of appellant that the reward scheme meant furtherance of business futile and hence on both clauses (g) and (h) of sub-section (5) of section put embargo on availability of input tax credit itself as such situations were obviously found in the reward scheme of the appellant.
8.6 The appellant has referred to the Circular No.92/11/2019 dated 7.3.2019 issued under Section 168 (1) of the Act, and claimed that their situation falls under ‘C. Discounts including ‘Buy more, save more offers’. Para: ‘C’ provides clarification in cases when staggered discount is offered to customers; periodic/year ending discounts to stockiest, etc based on the criteria spelt in, whereas in the case at hand, the retailers/stockiest are extended rewards which are definitely not’ ‘Discounts’ discussed in Para C of the circular. The appellants case more aptly falls under Para A of the Circular. It has been established that the giving away of goods/services under the scheme is not a ‘Supply’ and therefore ITC of the GST paid on the goods/services procured for the ‘Buy n Fly Scheme’ is not available to the appellant. Further, the various other Case laws relied upon by the appellant and Advance Ruling Authority pertain to the issues dealt with under the legacy Acts viz., Central Excise, Service Tax Act, TNGST Act 1959, Income Tax Act and Transfer of property Act and not relatable to the provisions under the GST Act 2017.
9. To sum up, as per the provisions of the CGST Act/TNGST Act 2017 more precisely, Section 17 (5) of the Act, the gifts or rewards given without consideration even though they were given for sales promotion do not qualify as inputs for the purposes of Credit, since no GST is paid on its disposal. Therefore, we hold that the input tax credit on the inputs and input services involved in the goods and services used for the purpose of reward is not available for the appellant and accordingly the ruling given by the Advance Ruling Authority of Tamil Nadu requires no intervention and the appeal is dismissed.
10. In view of the above facts, we rule as under:
RULING
For reasons discussed above, we do not find any reason to interfere with the order of the Advance Ruling Authority in this matter. The subject appeal is disposed of accordingly.