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ITC on scheme promotion items.

SHAHHUL IQBAL (article assisstant) (56 Points)

13 February 2021

Dear sir,

Can we claim ITC of scheme promotion items distributed to shop owners? Items are watches, dinner set, bags etc.

There was a signed contract with party, that means it was not voluntary.

And a target sale so it can be take as a consideration.

Please help me on this matter.

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8 Replies

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 14 February 2021

ITC on items distributed free cannot be taken.

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SHAHHUL IQBAL (article assisstant) (56 Points)
Replied 14 February 2021

Dear sr,

Can't we take the sale target they have to be achieved as a consideration. So that it was not gift and a contract is too there so not a voluntary distribution.

CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 14 February 2021

Then you will have to value the consideration and pay gst.

SHAHHUL IQBAL (article assisstant) (56 Points)
Replied 14 February 2021

Please elaborate.

Shivam RC (Student) (23683 Points)
Replied 14 February 2021

As per the Provision of Section 17(5) clause (h) of the CGST Act 2017, Input Tax Credit ( ITC ) on Goods lost, stolen, destroyed, written off or disposed off by way of free gifts or FREE SAMPLES is BLOCKED. So you cannot claim ITC on goods distributed as free samples or gifts to the shop owners.

As far as the "CONSIDERATION" part is concerned, Consideration as defined U/s 2(31) of the CGST Act 2017 includes both monetary and non-monetary value of any act.

Extract of the Provision of Section 2(31) of the CGST Act 2017 is reproduced below :

"Consideration" in relation to the supply of goods or services or both includes -

[a] any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

[b] the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

Therefore you have to find out the "monetary value" of the act ( sale target achievement ) and value of supply accordingly to pay gst on it and then you can claim ITC. But be ready with all the proper documents to avoid any type of litigation problem in the future if any departmental enquiry or investigation takes place.

But it is advisable not to claim ITC on the goods which are disposed off by way of free gifts or samples. You can approach to the Advance Ruling Authority regarding this matter if you have sufficient time and resources and the amount of ITC involved is significant.

Consult with other Members of the forum too before taking any final decision.

Regards,
Shivam RC.

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CA Altamush Zafar (GST Consultant) (15971 Points)
Replied 14 February 2021

In simple words either you can say there is consideration. If there is then it is taxable.

If there is no consideration then it is free and therefore ITC will not be available.

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