Itc on family tours, paid to sales partner/auth. dealers

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Pravir Prashant (Querist)
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26 March 2019 "ABC & Co." paid Rs 10 Lakhs+5% GST to "Travels Ltd" for Private tour of its Sales Partner and Authorized dealers, my question is whether "ABC Ltd" is eligible to take ITC @5% paid on Rs.10 Lakhs to Travels Ltd ?

CA Shrey Tripathi

CA Shrey Tripathi (Expert)
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27 March 2019 No, check section 17(5)

Pravir Prashant

Pravir Prashant (Querist)
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27 March 2019 Thanks,
Please clarify, as per Section 17 (5) (b) (iv) states "travel benefits extended to EMPLOYEES on vacation such as leave or home travel concession"

In my case there is no employer-employee relationship between ABC and its Sales partner/authorized dealers, but ABC is sponsoring family tour of each of its dealers and sales partner (in group) who achieved the prescribed target.

Dealers and sales partner are receiving commission from ABC and also profit on sale of its product with small margin.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 In the scenario you described, where "ABC & Co." paid Rs. 10 lakhs + 5% GST to "Travels Ltd" for a private tour of its sales partners and authorized dealers, the eligibility for Input Tax Credit (ITC) under GST depends on the specific provisions related to input tax credit and the nature of the expenses incurred.

### **Analysis Based on GST Provisions**

1. **Eligibility for ITC on Travel Expenses:**
- **Section 17(5) of the CGST Act** provides a list of blocked credits, which includes:
- **Section 17(5)(b)(iv)**: "Travel benefits extended to employees on vacation such as leave or home travel concession" are blocked credits. However, this provision specifically refers to travel benefits extended to employees.

- In your case, the expenditure is on a private tour for sales partners and authorized dealers, not employees. This expenditure is for incentivizing dealers and partners, not for travel benefits extended to employees.

2. **Business Purpose and Nature of the Expense:**
- **Section 17(5)(a)** of the CGST Act states that ITC is not available on expenses that are personal or not related to business operations. Since the tour is for sales partners and authorized dealers as an incentive or reward, it is related to business promotion.

3. **ITC Eligibility for Business Promotion Expenses:**
- If the tour is considered a business promotion activity and is directly related to the business operations, it could be argued that the expenditure is related to business activities. In such a case, the ITC could potentially be available on the GST paid.

4. **Practical Considerations:**
- Since the tour is a business incentive and not a regular employee benefit, it does not fall under the specific blocked credit related to employee travel benefits. It is important to ensure that the nature of the expense is well-documented as a business promotion expense.

### **Recommendation:**
To ensure compliance and avoid disputes with tax authorities, consider the following steps:
- **Documentation**: Maintain detailed documentation showing that the expenditure is for business promotion and is related to incentivizing sales partners and dealers.
- **Consultation**: Seek advice from a tax consultant or GST professional to confirm the eligibility of ITC in your specific case and to ensure proper documentation and justification for claiming ITC.
- **Review Provisions**: Regularly review GST provisions and notifications to ensure compliance with the current regulations.

**In Summary:**
While the blocked credit provisions specifically address travel benefits for employees, business-related expenses for incentivizing sales partners or dealers may not fall under these blocked credits. Therefore, you may be eligible to claim ITC on the GST paid for the private tour if it is deemed a business promotion expense. However, confirming with a GST professional is advisable to ensure proper compliance and documentation.