Karnataka AAR: Gold coins and white goods to dealers not gifts, classified as supplies

Companies distributing gold coins/white goods to dealers under promotional schemes will not be called gifts but supply. Accordingly, the companies can claim Input Tax Credit (ITC) on that, ruled Karnataka’s Authority for Advance Ruling (AAR).

The applicant, Kalaburgi-based (Karnataka) Orient Cement Limited is engaged in manufacturing various kinds of cement. In order to achieve sales and marketing objectives, the company has launched various target/performance-based discount schemes and white goods schemes for its dealers. Under various schemes, it distributes gold coins and white goods. The applicant submitted that these coins and white goods cannot be treated as gifts as a dealer is eligible for these items only to the extent of the amount lying as a credit to his account and is subjected to the satisfaction of the terms and conditions of the scheme.

It also submitted that the distribution of precious metal coins and white goods cannot be regarded as a permanent transfer or disposal of business assets as the said restriction is in respect of only those assets which are capitalized in the books of accounts and not in respect of the revenue expenditure. The important thing to note here is that the applicant has not received any consideration for distributing goods under promotional schemes.

The applicant sought an advance ruling on three questions. First, will distributing precious metal coins and white goods be treated as gifts without ITC? Second, whether such distribution is treated as supply, even without consideration. Third, the obligation to issue gold coins and white goods subject to achieving certain targets be treated as supply.

Based on all the arguments made and facts presented, the AAT said that the applicant is issuing gold coins and white goods 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 gift,” AAR observed.

The bench quoted a particular clause in section 17 of the CGST Act, which states input tax credit is not available on “goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.” Since the goods are not given, this clause is not applicable to the present transaction.

“Given, that the distribution of gold coins and white goods are treated as supplies and attracts the tax liability on such distribution, the input tax credit is not restricted under any of the provisions of section 17,” AAR concluded.

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