GST AAR Says Businesses Can Claim ITC On Goods Distributed To Dealers As Incentives On Target Completion

The Authority for Advance Ruling ruled that ITC can be claimed on goods obtained for the purpose of distribution to dealers once they achieve pre-specified and pre-approved sales targets.

The ruling contradicts earlier mandates and experts believe the industry should wait for more clarification from the GST Council on the matter. 

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Businesses will now be able to claim input tax credit (ITC) on items acquired for distribution to deals upon completion of pre-approved targets and conditions, a GST advance ruling authority has stated. 

The Karnataka-bench of the Authority for Advance Ruling (AAR) has declared that ITC can be claimed on items like gold coins, goods, etc, obtained for the purpose of distribution to dealers once they achieve pre-specified and pre-approved sales targets. The bench has ruled these expenses as part of the promotional schemes of businesses, as they are procured as incentives for the dealers, reported PTI. 

The ruling took place after Orion Cement Ltd approached the AAR asking for clarification on whether ITC can be claimed on the distribution of such goods to dealers after completion of pre-approved sales targets. The company noted that it provides multiple promotional schemes like monthly/quarterly quantity discount schemes, etc. These schemes facilitate the company in reaching it’s sales and collection targets. 

The AAR in it’s ruling observed that ‘the applicant is issuing these gold coins and white goods so procured as incentives as per the agreement reached between himself and the recipients. It is only issued subject to the fulfillment of certain conditions and stipulations. Gift is something which is given without any conditions and stipulations and hence the same cannot be covered under the scope of 'gift'’.

The authority in it’s order dated August 24 noted that ‘the applicant's obligation to issue gold coins and white goods to the dealers/ customers upon achieving the stipulated lifting of the material/purchase target during the scheme period would not be regarded as goods disposed of by way of gift and input tax credit would not be restricted’. 

Commenting on the ruling EY Tax Partner Saurabh Agarwal said that the mandate doesn’t classify the distribution of gold coins, Godrej digital safe lockers, etc. as gifts as these offerings are coupled with certain conditions and not voluntary. Agarwal stated that the ruling contradicts earlier mandates and the industry should wait for more clarification from the GST Council on the matter.