ITC available on gold coin distributed to dealers as incentive under the scheme

The AAR, Karnataka, in M/s. Orient Cement Limited [Advance Ruling No. KAR ADRG 27 of 2023 dated August 24, 2023] ruled that, ITC on gold coins is not restricted under section 17(5)(h) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), since the gold coin is not given as gifts but as the achievement of marketing targets set by the assessee.

Facts

M/s. Orient Cement Limited ("the Applicant") is engaged in manufacturing and supply of Cement.

The Applicant offers various sales promotional scheme to the dealers which helps to achieve the sale targets. One such scheme is "Monthly / Quarterly Discount Scheme", wherein the dealer from has to purchases specified quantity of material in order to avail the discount which is as per the Applicant is INR 13.00 per bag. The said discount will be credited to the dealers account. The Applicant instead of adjusting the amount in account of dealer, the Applicant provides gold coins.

Higher the quantity of cement purchased by the dealer, higher will be the discount earned by dealer resulting into higher eligibility of gold coins. 

The Applicant contended that gold coins supplied to the dealers are in the nature of incentive for achieving the sales targets and the same is knowledge of the dealers in advance. Thus, cannot be termed as gift.

Accordingly, the Applicant is eligible to avail input tax credit ("ITC") on purchase of such gold coins.

Issue

Whether the Applicant is eligible to avail ITC on gold coins given to dealers on achieving sales target?

Held

The AAR, Karnataka, in Advance Ruling No. KAR ADRG 27of 2023 held as under:

• Observed that, the Applicant has issued gold coins as incentives as per the agreement between the Applicant and the dealers. It is only issued subject to the fulfilment of certain conditions and stipulations.
• Further observed that, the gold coins is for achievement of marketing targets set by the Applicant.
• Opined that, Gift is something which is given without any conditions and stipulations and the same cannot be covered under the scope of "gift".
• Noted that, section 17 (5) (h) of the CGST Act states that ITC is not available on "goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples". Since the gold coin is not given as gifts, thus this clause is not applicable to the present transaction.
• Held that, ITC is not restricted under any of the provisions of Section 17 more so under section 17(5)(h) of the CGST Act.