2019(09)LCX0200(AAR)
AAR-KARNATAKA
M/s Surfa Coats (India) Pvt Ltd
decided on 12/09/2019
THE AUTHORITY ON ADVANCE
RULINGS
IN KARNATAKA
GOODS AND SERVICES TAX
VANIJYA THERIGE KARYALAYA, KALIDASA ROAD
GANDHINAGAR, BENGALURU - 560009
Advance Ruling No. KAR ADRG 28/2019
Date : 12-09-2019
Present:
1. Sri. Harish Dhamia,
Additional Commissioner of Central Tax, .... Member (Central Tax)
2. Dr. Ravi Prasad M.P.
Joint Commissioner of Commercial Taxes .... Member (State Tax)
1. | Name and address of the applicant | M/s Surfa Coats (India) Pvt Ltd, No. 639, 46th A Cross, 3rd Block, Rajajinagar, Bengaluru - 560010 |
2. | GSTIN or User ID | 29AAECS3469C1Z9 |
3. | Date of filing of Form GST ARA-01 | 26.03.2018 |
4. | Represented by | Sri Gopalakrishna H M, Deputy Manager (Accounts) |
5. | Jurisdictional Authority - Centre | The Principal Commissioner of Central Tax, Bangalore West Commissionerate. |
6. | Jurisdictional Authority - State | LGSTO-140, Bengaluru. |
7. | Whether the payment of fees discharged and if yes, the amount and CIN | Yes, discharged fee of Rs.5,000/- under CGST Act and Rs.5,000/- under KGST Act vide CIN UBIN18032900289522 dated 23.03.2018 |
ORDER UNDER SECTION 98(4) OF
THE CENTRAL GOODS AND
SERVICE TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE
KARNATAKA GOODS AND SERVICES TAX ACT, 2017
1. M/s. Surfa coats (india) pvt.
ltd., (called as the Applicant hereinafter), No.639, 46th Cross, 3rd Block, Rajajinagar, Bengaluru - 560010, having GSTIN number 29AAECS3469C1Z9, have filed
an application for Advance Ruling under Section 97 of CGST Act, 2017 & KGST Act,
2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01
discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Private Limited Company and is registered under the Goods
and Services Tax Act, 2017. The applicant has sought advance ruling in respect
of the following question:
Whether the applicant is eligible to claim the GST Input tax credit on the items
purchased for furtherance of business?
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that they are into the business of manufacturing
decorative paints meant for interiors as well as exterior surfaces and have
three manufacturing plants at Peenya, Bengaluru to cater the market needs from
time to time. The manufactured paints are marketed through their sales offices
spread across in Southern and Western India.
b. The applicant submitted that like any other industry, Paint Industry (i.e.
the applicant company in particular) always has to face the heat of
macroeconomic factors to sustain in the industry as an ongoing concern. Small
scale industries also have to face competition from giants to market its
products extensively. If small scale industry has to survive in the industry,
then their pricing should be much lower than leading paint companies (prices
plus incentives given to dealers by various means).
c. The applicant frames incentive schemes, depending on the market conditions,
to motivate dealers to lift their products. The titles of the schemes read as
Painters Schemes, Dealers Incentive Schemes, Gold Schemes, Foreign and Local
Trip Schemes etc.. The incentives are given subject to fulfilment of terms laid
down in each such scheme.
d. The incentive, once computed in terms of above schemes, is given mostly in
kind. The applicant purchases TVs, Refrigerators, Washing machines, Mixers, Wet
Grinders, Watches, Mobiles, Gold Coins, Bed Sheets, Rice bags, T-Shirts, Rain
Coats, etc., for distribution to Painters and dealers in connection with the
above said incentive schemes.
e. The applicant submitted, while explaining various Painter schemes that the
Painters play a vital role to any paint company to market their products.
Painter is similar to middleman between customer and dealer/ company. Customers
always tend to listen to painters, as they feel that the painter is well versed
about the quality of paint technically. Therefore, most of the paint companies
incentivize these painters to make their presence in the market. To capture each
of the painters purchase, in general, every company introduces paint scheme.
Whenever paint is marketed through a painter then details of such painter is
tracked through a scheme called Painter Scheme¯. Once in a given period, the
points accumulated by each of the painters are computed and compensated them
suitably (according to their liftings) by way of giving them promotional items
as indicated above.
f. The applicant also explained that they also have a Gold Scheme in which gold
is given to dealers once the scheme is over as per actual sale in terms of
targets fixed. The quantum of gold is specified in the incentive scheme in line
with actual sales done by the dealers.
g. The applicant states that they used to get the GST input tax and bills from
Composition taxable persons for procuring the above mentioned incentive items
when they are purchased and these items are used in the course of furtherance of
business only and not for sale.
h. The applicant, in view of the above, desires to have a ruling on whether
Input tax credit is admissible, as these incentive items are bought and given in
terms of schemes to promote companys products only.
PERSONAL HEARING / PROCEEDINGS HELD ON 03.04.2018.
4. Sri Gopalakrishna H M, Deputy Manager (Accounts) and duly authorised
representative of the applicant appeared for personal hearing proceedings held
on 03.04.2018 & reiterated the facts narrated in their application.
5. FINDINGS & DISCUSSION:
5.1 We have considered the submissions made by the Applicant in their
application for advance ruling as well as the submissions made by Sri
Gopalakrishna H M, Deputy Manager (Accounts) and duly authorised representative
of the applicant during the personal hearing. We have also considered the issues
involved, on which advance ruling is sought by the applicant, and relevant
facts.
5.2 At the outset, we would like to state that the provisions of both the CGST
Act and the KGST Act are the same except for certain provisions. Therefore,
unless a mention is specifically made to such dissimilar provisions, a reference
to the CGST Act would also mean a reference to the same provisions under the
KGST Act.
5.3 The Applicant seeks advance ruling on the question that Whether the
applicant is eligible to claim the GST Input tax credit on the items purchased
for furtherance of business.
5.4 The business/ transactions of the applicant are examined and observed that
they supply paints, manufactured by them, to persons on discharging applicable
GST thereon. The applicant is claiming input tax credit of tax paid on the raw
materials and any other input materials/ capital goods. They also give
incentives to motivate the dealers subject to fulfillment of terms laid down
under various schemes, which are independent of the tax payable/ paid.
5.5 The applicant, in order to promote the business, gives incentives/ gifts to
those persons who assist in the marketing of the products i.e. dealers, painters
etc., in the form of goods and services, which are duly tax suffered & procured
from other registered suppliers. The said goods/ services are distributed to the
persons as gifts/ incentives without receiving any consideration for the same.
Hence the goods and services so procured and disposed off/ distributed as
incentives/ gifts are disposed without any consideration and hence do not
qualify to be a supply in terms of Section 7 of the CGST Act. Further no GST is
being paid on disposal of the said gift items.
5.6 In this regard we drawn attention to clause (h) of Sub-section (5) of
Section 17 of the COST Act, 2017 and the KGST Act 2017, which states as under:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and
sub-section (1) of section 18, input tax credit shall not be available in
respect of the following, namely:-
(a) . . . .
¦
¦
¦
¦
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or
free samples; and
(i) . . . .¯
5.7 It is clearly evident from above that Section 17(5)(h) of CGST Act 2017 does
not allow credit on any goods disposed by way of gift or free samples, whether
or not in the course or furtherance of business, It is an admitted fact that the
applicant herein purchases the items to be disposed as gifts under various
incentive schemes to dealers/ painters etc.. Therefore the applicant is not
entitled to avail ITC on such items.
5.8 Further, at times the applicant also offers foreign and local trip schemes
as incentives, for which they procure various tax suffered services. The free
travel services so provided are without any consideration and hence do not
qualify to be a supply¯ in terms of Section of the CGST Act 2017 and Schedule 1
to the CGST/KGST Act 2017.
5.9 In this regard we draw attention to the Circular No.92/11/2019-GST dated
07.03.2019, issued by the CBIC, wherein, at para (A)(ii), it is clarified that
input tax credit shall not be available to the supplier on the inputs, input
services and capital goods to the extent they are used in relation to the gifts
or free samples distributed without any consideration¯ In the instant case the
applicant offers free foreign / local trips, as incentives, to the dealers /
painters etc., without any consideration. Therefore the input tax credit on the
services procured (input services); for offering aforesaid services of free
trips, is not available to the applicant.
6. In view of the foregoing, we rule as follows
RULING
The applicant is not eligible to avail input tax credit on the inward supplies of goods and services which are attributable to the incentives provided in the form of gifts of goods and services to the painters and dealers and other persons under the CGST / SGST / IGST Act.
Harish Dharnia)
(Member)
(Dr.Ravi Prasad.M.P.)
Member
Place: Bengaluru
Date: 12.09.2019
To,
The Applicant
Copy to:
The Principal Chief Commissioner
of Central Tax, Bangalore Zone, Karnataka.
The Commissioner of Commercial Taxes, Karnataka, Bengaluru.
The Principal Commissioner of Central Tax, Bangalore West Commissionerate,
Bengaluru.
The Asst. Commissioner, LGSTO-140, Bengaluru
Office Folder
Equivalent .