AAR: ITC under GST can be availed on distribution of promotional products to distributors

Input Tax Credit (ITC) under the GST regime can be availed on distribution of promotional products to distributors, Karnataka’s Authority for Advance Ruling (AAR) has upheld.

The ruling has been given on application filed by Page Industries which is engaged in manufacture, distribution and marketing of knitted and woven garments under the brand name of ‘Jockey’ and swim wares and swimming equipment under the brand name of ‘Speedo.’

As a part of marketing and sales promotion activities, companies procure various promotional products and marketing material and distribute them among its distributors and franchisees for free.

The company approached AAR with a specific question, “whether in the facts and circumstances of the case, the promotional product/materials and marketing items used by the Applicant in promoting their brand and marketing their products can be considered as input?”. It also wanted to know whether on the GST paid ITC can be availed?

Classification

The company had classified various promotional materials under heads such as display items, display boards for retailers, uniforms for sales personal, posters, gifts for retailers, sales personal and customers, outdoor headings and carry bags.

It submitted that all these are procured by them either as goods or services in the course or furtherance of business and hence are inputs and input services.

During the hearing, the AAR categorised all the items into distributable and non distributable. Distributable means those delivered free of cost to distributors, franchisees and retailers which further can be distributed among their employees and customers.

Non-distributable means those promotional items which are delivered to the distributors, franchisees and retailers but ownership lies with the company (the Applicant).

In its ruling dated December 15, the AAR said that the ITC on GST paid on the procurement of ‘distributable’ products i.e., distributed to the distributors and franchisees is allowed as this amounts to supply to the related parties which is eligible to GST.

Further, it said that such distribution to retailers for their use can not be claimed as gifts to the retailers or to their customers and hence ITC for GST paid on such items is not allowed.

According to AAR, the GST paid on the procurement of ‘non-distributable’ products qualifies as capital goods and not as inputs. The company can claim ICT on their procurement. However, if they are disposed by writing off or destruction or lost, the ITC needs to be reversed.

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