Goods purchased for sales promotions, such as “Gold coins” and “T-shirts,”  Vs. Input Tax Credit (ITC) admissibility Vs Alternate Way Out




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Goods purchased for sales promotions, such as “Gold coins” and “T-shirts,”  Vs. Input Tax Credit (ITC) admissibility Vs Alternate Way Out

 

The recent Madras High Court judgment in the case of ARS Steels and Alloy International WP 31/2022 has significant implications for businesses engaging in sales promotional activities. The court ruled that Input Tax Credit (ITC) cannot be claimed on goods purchased for sales promotions, such as “Gold coins” and “T-shirts,” when distributed as gifts or free samples. This decision is based on Section 17(5)(h) of the CGST Act, which restricts ITC on goods disposed of in this manner.

The court’s interpretation equates sales promotional activities with the distribution of gifts or free samples, aligning with Circular No. 92/11/2019-GST, which also indicated the non-availability of ITC for such goods. Businesses utilizing goods as incentives in their sales promotions will be directly impacted by this ruling and must carefully structure their activities to potentially minimize the impact of ITC restrictions.

To navigate these changes, taxpayers may consider exploring alternative promotional methods that do not involve distributing goods, such as discounts, coupons, loyalty programs, or contests. It is also advisable to reassess the business model to determine if the sales promotion activity is essential to core operations and potentially restructure it to qualify for ITC. Seeking professional guidance from tax experts is crucial to understanding the specific implications of this ruling on individual businesses and exploring strategies to mitigate the impact.

Readers may share their views in the comment box.

The Copy of the order is as under:

circular-cgst-92

1736620814775




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