GST: ITC can’t be availed on distribution of promotional product done for marketing and brand promotion, rules AAAR

The Karnataka Appellate Authority of Advance Ruling (AAAR) ruled that the Input Tax Credit (ITC) can not be availed on the distribution of promotional products done for marketing and brand promotion.

The applicant, Page Industries Ltd. was engaged in the manufacture, distribution, and marketing of Knitted and Woven Garments under the brand name of “Jockey”, swimwear and swimming equipment under the brand name “SPEEDO”.

The applicant sought advance ruling on the classification of goods and services as whether in the facts and circumstances of the case, the promotional products/materials and Marketing Items used by the applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under Section 2(59) of the CGST Act, 2017 and GST paid on the same can be availed as input tax credit in terms of Section 16 of the CGST Act, 2017.

The Applicant submitted that as per Section 16 of the CGST Act, every registered person subject to terms and conditions specified in Section 49 of CGST Act is entitled to avail the same as “Input Tax Credit” the GST paid by him on the supply of goods or service to him, which are used or intended to be used in the cause or in furtherance of his business and same will be transferred to his electronic credit ledger.

The applicant stated that promotional/marketing items using by them at point of purchase i.e. showrooms or to their distributor/dealer’s showrooms is to promote their brands and made known the range of products manufactured by them.

The promotional/marketing items are distributed for free by the applicant to promote their brand, hence the same cannot be construed as “gift” and made applicable Section 17(5)(h) of CGST Act.

The Applicant add that in respect of the promotional/marketing items to their own showrooms there was neither “supply” nor there was “gift” and hence applying the provisions of Section 17(5)(h) of CGST Act, 2017 and apportioning the input tax credit should not arise.

The AAR noted that promotional or marketing items sent to showrooms and to distributor/dealer’s showrooms to use in promoting their brands and market their products will amount to use of said goods in business or furtherance of the applicant’s business. Therefore, the same would qualify as “input” in terms of Section 2(59) of CGST Act, 2017 and GST paid on the same is entitled to avail as “input tax credit” in terms of Section 16 of CGST Act, 2017.

However, the AAAR consisting of D.P.Nagendra Kumar and M.S.Srikar, while setting aside the AAR’s ruling held that the Promotional Products/Materials & Marketing items used by the Appellant in promoting their brand & marketing their products can be considered as “inputs” as defined in Section 2(59) of the CGST Act, 2017. However, the GST paid on the same cannot be availed as an input tax credit in view of the provisions of Section 17(2) and Section 17(5)(h) of the CGST Act, 2017.

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