Indirect Taxes: A Study onInput Tax Credit (ITC) is admissible on GST paid for promotional expenses, considering the supply of promotional goods.

Bringing a fair conclusion to the long-disputed issue of whether or not ITC is admissible on GST paid for promotional expenses, the Karnataka bench of Authority for Advance Ruling (AAR) ruled that ITC will be available on such cases.

As the supply of promotional goods within related parties, such as franchise, is considered a ‘taxable supply,’ it attracts GST, which also justifies for eligibility of ITC. Whether franchises would be considered related parties is still a debatable issue, the board was decisive that ITC would not be available on the supply of promotional items to retailers, as it is not treated as a taxable supply.

This issue came into limelight when the Bengaluru-based Page Industries, a manufacturer and distributor of ‘Jockey’ and ‘Speedo’ branded goods, sought the advance ruling from AAR on the issue of whether promotional products and marketing items, which are used for promoting their brands, could be considered as ‘inputs’ as per Section 2(59) of the CGST Act, 2017. And as GST was paid when the promotional products were procured, the applicant also raised the issue of whether ITC can be claimed on these products.

The applicant sought after these issues as the purchase of promotional items, such as display boards, posters, carry bags, and uniforms, was made due to the obligations of promoting the brands. These products were neither used for personal use nor given as gifts. And hence, ITC should be permitted on the GST paid.

The AAR panel, consisting of Dr. M.P. Ravi Prasad and Mashood Ur Rehman Farooqui, ruled that the company is eligible to claim ITC on GST paid on procuring the ‘distributable’ items, as the distribution of these items adds on to the supply which is exigible to GST. These costs are factored in the overall business’s expenses on which the taxpayer has paid GST.

Furthermore, the ITC can only be claimed if the said items are distributed to related parties, like franchises and outlets. It cannot be claimed when the items are distributed as gifts to retailers or customers.

Whereas no GST should’ve been applicable on these free supplies, it is an ideal decision to allow ITC on purchase of such goods. The GST law should be devised to facilitate and encourage manufacturers to engage in such promotional activities which overall increases demand and thereof GST outlay on them

Indirect Taxes

Indirect Taxes