In Re: Biostadt India Limited
GST
2019 (3) TMI 540 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (22) G. S. T. L. 551 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 20-12-2018
GST-ARA- 72/2018-19/B-165
GST
SHRI B. TIMOTHY, AND SHRI B. V. BORHADE, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by BIOSTADT INDIA LIMITED, the applicant, seeking an advance ruling in respect of the following questions.
1.1. The question or issue before Your Honor for determination is whether Input Tax Credit (“ITC”) can be claimed by the applicant on procurement of Gold coins which are to be distributed to the customers at the end of scheme period for
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
G IS SOUGHT
1. This Application is being filed by M/s. Biostadt India Limited ('the Applicant'/the Company'). The Applicant, having Good and Service Tax (GST) Registration No. 27AACCB1830G123 is inter alia engaged in the business of developing, manufacturing and distributing crop protection chemicals and hybrid seeds.
2. Biostadt India Limited has been serving the farming community for over three decades. The company provides a helping hand to the farmers by providing them with top-of-the-Iine agricultural inputs and services.
3. Over a period of time, the applicant has diversified into a range of seaweed-based biotechnological inputs using fermentation technology, under the well-known brand 'Biozyme'. They also deal in crop protection chemicals – insecticides and pesticides and has made its foray in hybrid seeds market.
4. The manufacturing facilities of the applicant are multi-locational and are very well-equipped with state-of-the-art technology and testing equipment which produ
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
al Excise law, Service tax legislation and respective State Value Added Tax laws and now is registered under Good and Service Tax (GST).
8. This Application is being filed by M/s. Biostadt India Limited which inter-alia has launched a new sales promotion scheme namely the “Kharif Gold Scheme 2018” for their customers. The said sales promotion scheme helps the company in achieving their sales and collection targets.
9. The terms and conditions of the scheme are as under:
a. The said scheme will be in force for the period June 2018 to August 2018.
b. The scheme is divided into two parts:
Lifting of products:
Customers who purchase the below mentioned products on or above their below mentioned quantity shall be entitled to one 10 grams Gold coin. The products that need to be lifted during the scheme are as under:
Products
Qty.(kgs/Itrs)
Biozyme Liquid
250
Biozyme Granules
1000
Amaze-X
200
Rejoice
30
Roko
50
Biomycin
50
Maiden
20
Collections:
If the customers after
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e procuring gold coins from jewelers which are to be distributed at the end of the scheme. As per notification 1/2018 – CGST (Rate) dtd. 28.06.2017, gold is leviable to GST at the rate of 3 percent.
11. The applicant intends to maximize their sales and minimize their outstanding collection through the operation of “Kharif Gold Scheme 2018”.
Statement of relevant facts having a bearing on the question(s) raised.
1. ISSUE FOR DETERMINATION
1.1. The question or issue before Your Honor for determination is whether Input Tax Credit (“ITC”) can be claimed by the applicant on procurement of Gold coins which are to be distributed to the customers at the end of scheme period for achieving the stipulated lifting or payment criteria?
1.2 The question or issue before Your Honor is not restricted to the said scheme only. The applicant notifies schemes with similar conditions periodically. So whether the ITC can be claimed in all such similar schemes.
STATEMENT CONTAINING THE APPLICANT'S INTER
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
tion 25 of the CGST Act.
As stated earlier, the applicant is registered under the GST law.
Input Tax:
Input tax as defined under section 2(62) of the CGST Act includes CGST, respective SGST and UTGST, IGST and so on.
Section 2(63) of the CGST Act defines Input tax credit as the credit of input tax.
Inputs is defined under Section 2(59) of the CGST Act to mean any goods other than capital goods which are used or intended to be used by a supplier in course or furtherance of business.
Gold coins are inputs for the applicant and GST levied on such purchase qualifies to be an input tax for the purpose of Section 16(1) read with Section 2(62) of the CGST Act.
In course or furtherance of business:
The notable requirement under Section 16(1) of the CGST Act is that the credit of input tax claimed on a supply of goods or services should be used in course or furtherance of the business. While the term business is defined under CGST act, the phrase “in course or furtherance of business” i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ces or both. These conditions are with respect to possession of tax invoice, receipt of goods, payment of tax and filing of returns.
The applicant contends that he has satisfied the conditions as laid down in Section 16(2) and is eligible to claim ITC on purchase of gold coins.
2.5. In accordance with the above paras, applicant strongly feels that he is eligible to claim ITC on procurement of gold coins as the requirements of Section 16(1) and 16(2) have been fulfilled. The only criteria that's need to be evaluated is the restrictions laid down in Section 17 which provides for apportionment of credits and blocked credits.
2.6. Section 17(5) of the CGST Act provides for blocked credits. Section 17(5) contains a non-obstante clause with respect to Section 16(1) of the CGST Act. Hence if any of the clause under Section 17(5) is satisfied then ITC shall be specifically disallowed even if it was eligible at the first stage i.e. under Section 16(1).
2.7. The applicant reproduces the rele
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
he Gift-Tax Act (18 of 1858) had defined the word gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money's worth.
The Honorable Supreme Court cited the definition of 'gift' from Corpus Juris Secundum, Volume 38 in the case of Sonia Bhatia v. State of UP [1981 SCR (3) 239,1981 SCC (2) 585) = 1981 (3) TMI 250 – SUPREME COURT as follows:
“A 'gift' is commonly defined as a voluntary transfer of property by one to another, without any consideration or compensation therefor. A 'gift' is a gratuity and an act of generosity and does not require a consideration, but there can be none; if there is a consideration for the transaction, it is not a gift.
2.10. On the basis of above jurisprudence, one can reasonable conclude that gift is a gratuity and does not require any consideration. If a consideration is attached to a transaction, then it cannot be termed as a gift. Emotional consideration such as l
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
sfies the criteria laid under the scheme. Giving away gold coins to customer cannot be termed as “voluntary” act of the applicant.
2.12. The applicant strongly contends that the gold coins distributed to customers at the end of scheme period cannot be qualified as “gift”. Since they cannot be qualified as gift, disallowance under Section 17(5) will not be attracted. Hence, the applicant should be entitled to claim ITC of gold coins purchased for effective implementation of the scheme.
3. PRAYER
In light of the above, a Ruling is sought from the Honorable Authority on eligibility of ITC on procurement of gold coins for distribution to customers under the sales promotion scheme.
Kharif Gold Scheme 2018
Scheme Period: June to Aug 2018
Scheme Benefit
Products
Qty.(kgs/ltrs)
Biozyme Liquid
250
Biozyme Granules
1000
10 GM Gold Coin for lifting Products
Amaze-X
200
Rejoice
30
Roko
50
Biomycin
50
Maiden
20
Collections:
Month
Collection Amount (Rs.)
8
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
upplier in the course or furtherance of business.
2. Input Tax [Section 2(62)1:
“Input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;
3. Input Tax Credit (Section 2(63)1:
“Input tax credit” means the credit of input tax
4. Registe
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ther tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation. For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
7. Blocked credits (Section 17(5):
Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:
(a) motor
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
law for the time being in force; or
(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or home travel concession;
(C) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.- For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
isions under the Gift Tax Act, 1958:
1. Gift (Section 2(xii):
“Gift” means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in section 4, deemed to be a gift under that section;
[Explanation.-A transfer of any building or part thereof referred to in clause (iii), clause (iiia) or clause (iiib) of section 27 of the Income tax Act, by the person who is deemed under the said clause to be the owner thereof made voluntarily and without consideration in money or money's worth, shall be deemed to be a gift made by such person;]
Additional submissions dated 19.11.2018
We reiterate our submissions dated 23.08.2018, 10.09.2018 & in the course of preliminary hearing wherein we have sought ruling on admissibility of input tax credit of tax paid on purchase of gold coins for our sales scheme.
Without rejudice to written su
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nother of any existing movable or immovable property voluntarily and without consideration in money or money's worth.
Honorable Supreme Court cited the definition of 'gift' in the case of Sonia Bhatia v. State of UP [1981 SCR (3) 239, 1981 SCC (2) 585] = 1981 (3) TMI 250 – SUPREME COURT as a voluntary transfer of property by one to another, without any consideration or compensation therefor. A gift' is a gratuity and an act of generosity and does not require a consideration, but there can be none; if there is a consideration for the transaction, it is not a gift.
It is a settled principle that “Gift cannot arise out of a contractual obligation” and “nothing comes free in business”.
The Australian High Court in the case of commissioner of Taxation (Cth) v. McPhail [1968] 41 ALUR 346 held that to constitute a 'gift' the property should be transferred voluntarily and not as a result of a contractual obligation. The copy of said judgement is enclosed at Annexure “B”. – Please refer t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
are not related and price is the sole consideration for the supply.
Related persons is defined in explanation to section 15 of CGST AGNES
Our customers do not fall under any of the said criteria of related person
Price of all the products are pre-defined and customers are obliged to pay that price for purchase of products.
Price is the sole consideration received from the customers for sales made by us.
Section 15(1) criteria is satisfied in our case and hence value of supply of goods should include only the price that is payable by the customer. Value of gold coins cannot be clubbed with value of supply made by us.
Moreover, cost of gold coin to be distributed at the end of scheme is factored in sales price charged by us. As a result, we are indirectly discharging GST liability on gold coin supplied by us.
Further none of the conditions mentioned U/s 15(2) are satisfied to include the value of gold coin in the value of supply.
We would further submit that when a 'comme
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
er.
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
It is submitted that, Issue on which advance ruling is required:
Reference Application No:72 Dated 23.08.2018
I. Comments on Annexure-1 of Submission
1. Annexure I contains 'Statement of Relevant Facts Having a Bearing on the Questions on which the Advance Ruling is sought. This office offers no comments.
II. Comments on Annexure-II of Submission
1. Annexure II contains 'Issues for Determination'. This office offers no comments.
III. Comments on Annexure-Ill of Submission
Para 2.1: No comments,
Para 2.2: No comments.
Para 2.3 & Para 2.4 :
1. This office contends that the 'Gold coins' to be distributed to customers of M/s Biostadt India Limited at the end of the kharif Gold Scheme described in Annexure I of their submission are NOT INPUTS and hence, GST paid on such a purchase does not qualify to be an input tax for the purpose of Section 16(1) read with Section 2(6
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
, based on its facts, on the touchstone of the definition of inputs'.
5. In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with the business. It is important to note that only supplies received by a taxable person that are used/ consumed in the course or furtherance of business are eligible for claiming input tax credit. This impacts the eligibility to claim input tax: credit. Hence, it becomes important for an entity to justify that a particular act is done in the course and furtherance of its business goals and intentions.
6. We can determine whether a activity is undertaken in the course or furtherance of business on the basis of few principles:
a. Was the activity undertaken in line with the basic business model?
b. Is the activity needed for continuity in the supply?
c. Is the activity' mainly concerned with the making taxable supply for consideration?
7. Therefore, if some supply is either used exclusively in the cour
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
consideration unless we look as this distribution as a hidden discount'.
9. The conditions, laid down in Section 16(2) of the Act have been satisfied but not the basic requirement as per Section 16(1) of the Act. Hence, the contention of the Applicant is not acceptable.
Para 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 and 2.12:
1. Clause (b) of Section 17(5) of CGST Act 2017 stipulates that the input tax credit with respect to the “goods” disposed of by way of gift shall not be allowed. Or in other words, it is stipulated that no ITC on any goods can be availed, if they are given as gifts, whether or not in course of furtherance business.
2. ITC on goods given away or disposed as “gifts” should not be available when no tax is being paid on their disposal. The logic of satisfying Section 16 is of no avail to earn this credit lawfully, because Section 17(5) itself starts with a non obstante clause, which means even if Section 16 allows, Section 17(5) shall block. Moreover, Section 17 (5) is
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
efits or exchange consideration in kind (in lieu of cash) in the garb of gifts to avoid valuation and thus avoid levy of tax, In the instant case, the Gold Coins are gifts/ free supplies in course of business. If consideration for these goods is not charged directly; they shall qualify as “gifts” and ITC shall not be eligible.
4. If these 'gold coins' are not treated as gifts, another argument can be considered then as 'discount'/ 'hidden discount and the said discount satisfies the conditions under Section 15(3), i.e. the discount (whether in full or in part) arises and is recorded as a contractual obligation under specific invoice(s), TC shall be available on such goods. It may be worthwhile to show such goods under the respective invoice/credit note after establishing on record, the agreement under which it arises. As soon as an obligation is attached, the commodity loses its identity as a “gift” and no denial of ITC can arise under Section 17(5) in such case:
5. If it is so opine
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s applicable to their case. The facts of the case were totally different and also the said judgment was delivered under a different legislation and therefore, the same cannot be made applicable to the facts of this case which is being adjudicated under GST ACT. In the case of KONE ELEVATOR INDIA PVT LTD VS. STATE OF TAMIL NADU as reported in (2014(304) ELT 161. (SC) = 2014 (5) TMI 265 – SUPREME COURT it has been held that, it should be strict and literal, what is applicable in one taxing statute may not be applied to another taxing statute (Per: F.M. Ibrahim Kalifulla.] (Para-84). Hence, the case law. cited by the applicant in this respect is not acceptable.
8. In case the Advance Ruling Authority' accepts the contention of the applicant and allows the availment of ITC on gold coins, then the accounting of the stock and disbursement of gold coins should be required to be maintained.
Para : in the light of the above discussion, we pray that the Honorable Advance Ruling Authority may p
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e written submissions.
05. OBSERVATIONS
We have gone through the facts of the case. The issue put before us is in respect of a future transaction which would be on the lines thus –
The applicant is engaged in the business of developing, manufacturing and distributing crop protection chemicals and hybrid seeds and in order to achieve sales and marketing objectives, they have launched various target based – sales incentive schemes for their distributors and retailers (customers) to achieve a specified target and in turn helps the company to achieve their targets. The subject application is in respect of a sales promotion scheme known as “Kharif Gold Scheme 2018”, which has been floated by them for their customers and is of two types. In the first case, their Customers who purchased certain products on or above a certain quantity would be entitled to one 10 grams Gold coin. In the second scenario, their customers who, after lifting the products from the applicant, made certain minimum
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
n of gold coins is not in line with the basic business model, the gold coins are not essential for continuity in supply and the distribution of gold coins are not concerned with the making of taxable supply for consideration unless the distribution is looked as a hidden discount.
We find that the applicant has floated the subject scheme for the period June, 2018 to August, 2018 only, by way of which gold coins of different denominations would be given to those customers who lifted a certain quantity of products or made a certain amount of payment. Thus it is seen that it is only those specific customers who fulfill the conditions would be able to avail the benefit of the subject scheme. The applicant has submitted that the said Gold coins are inputs for them and GST levied on such purchase qualifies to be an input tax for the purpose of Section 16(1) read with Section 2(62) of the CGST Act.
We find that the provisions of ITC are governed by Sections 16 and 17 of the CGST Act, 2017. I
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ift or not. The word 'gift' has not been defined in the CGST Act and the Gift-Tax Act (18 of 1858) had defined the word gift to mean transfer by one person to another of any existing movable or immovable property voluntarily and without consideration in money or money's worth. It is seen from the definition that the transfer i.e the gift given in such a case has to be voluntary. The applicant has submitted that they have a contractual arrangement with the customer wherein if he purchases certain amount of company's product or makes payment in a prescribed manner then he shall be entitled to a gold coin of specific weight. A contractual arrangement implies especially in view of the magnitude and area of the applicant's business that, it should also be agreed by the customer in writing to such scheme floated by the applicant. We find that they have not submitted any such contract/agreement and in support of their contention, as Exhibit 'A' they have only submitted a brochure/writeup/invi
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s case gold coins, will be given to customers who satisfy certain conditions is nothing but assurance of giving away gifts on those conditions being achieved by the customers. Under the GST laws the intention for non-granting/denial of setoff is envisaged in situations where there is no tax on output supply. In cases where the goods are procured with levy of input tax and are supplied without tax being paid on such output supplies, the scheme of the GST Act provides no input tax credit, except export.
Schedule I to the CGST Act, 2017 deals with activities to be treated as supply even if made without consideration. As per Entry Number 2 to Schedule I (2), Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
excluded from the scope of being a supply, then the provisions of the Valuation Rules come into play. Thus in such cases it can safely be assumed that the purchase value and output supply value of the 'gift' shall be the same and therefore the ITC would be the same as the output GST payable. In other words if the giverof the gift does not pay output tax on the same then the compensation to the department would be the foregoing of the ITC on such gifts.
In the instant case it is seen that the applicant has assigned a value to the gold coins to be given gifts and the value is Rs. 3,200/- per gm. They have not explained as to how they have arrived at the value because value of gold changes everyday. Secondly the Scheme announced by them states that “customers who lifted the products as per the scheme and made payments as per the scheme are invited for the meeting.”
We now deal with one of the contention of the applicant that they have a contractual arrangement with the customer wherein
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
t 2017 does not mean that they are entitled to credit since Section 17(5) starts with “Notwithstanding anything contained in sub-section (1) of Section 16 ………” The implication is that in the subject case even if it seems, as per the applicant, that Section 16 (1) is applicable in their case and allows them credit, Section 17(5) shall block such credits.
In view of all above deliberations, the questions can be answered thus –
05. In view of the extensive deliberations as held hereinabove, we pass an order as follows :
ORDER
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA- 72/2018-19/B-165
Mumbai, dt. 20.12.2018
For reasons as discussed in the body of the order, the questions are answered thus –
Question :- The question or issue before Your Honor for determination is whether Input Tax Credit (“ITC”) can be claimed by the applicant on procurement of Gold coins which are to be distributed to t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
