The Karnataka AAR ruled that obligation to issue gold coins and white goods to the dealers upon achieving the stipulated lifting of the material/purchase target during the scheme period would be regarded as “goods disposed of by way of gift” and Input Tax Credit (ITC) cannot be denied.

FACTS 

The applicant is a Public Limited Company registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 and is engaged in manufacturing of cement.

ISSUES RAISED

Whether the applicant’s obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as “goods disposed of by way of gift” and Input Tax Credit (“ITC”) on the same would be restricted as provided under the Section 17(5)(h) of the CGST Act, 2017?

Whether the applicant’s obligation to issue gold coins and white goods to the dealers upon they achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a “permanent transfer or disposal of business assets where ITC has been availed on such assets” and would be treated as a supply even if made without consideration and be subjected to GST under SI. No. 1 of the Schedule-I to the CGST Act, 2017?

Whether the applicant’s obligation to issue gold coins and white goods to the dealers upon achieving the stipulated lifting of the material/ purchase target during the scheme period would be regarded as a supply under Section 7 of the CGST Act, 2017?

RULING

The AAR said that obligation to provide gold coins and white goods upon target achievement doesn’t constitute “goods disposed of by way of gift,” ITC isn’t restricted under Section 17(5)(h) of the CGST Act.

The same obligation qualifies as a “permanent transfer or disposal of business assets where ITC has been availed on such assets.” It’s treated as a supply subject to GST under Schedule I, Entry 1 of the CGST Act, even if given without consideration. 

The obligation to supply gold coins and white goods upon target achievement is regarded as a supply according to Section 7 of the CGST Act.

Applicant’s Name: Orient Cement Limited