GST: Input Tax Credit denied on T-shirts & Gold Coins purchased for sales promotion activity- Madras High Court

In the case of M/s. ARS Steels and Alloy International Private Limited, represented by Deputy Director N. Prabu Versus the State Tax Officer, The Deputy Commissioner (CT), Chennai reported at 2024 (12) TMI 398 - MADRAS HIGH COURT, following issues were raised:-

GST:

The petitioner challenged the denial of Input Tax Credit (ITC) availed on goods purchased for sales promotion (Gold Coins and T-Shirts) and stock variations for respective assessment years on the issues as under:

·?????? Whether the petitioner could claim ITC on goods such as Gold Coins and T-Shirts purchased for sales promotional activities.

·?????? Validity of stock variations noted during inspection and subsequent ITC reversal.

?

HELD THAT:

Section 16(1) of the respective GST enactments provides credit to an assessee, who is entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course of furtherance of his/her business and that the said amount shall be credited to the Electronic Credit Ledger of such person - The credit that is available under Rule 16(1) of the respective GST enactments is subject to such conditions/restrictions as may be prescribed and in the manner specified in Section 49 of the respective GST enactments - Section 17(5) is an exception to not only Section 16(1) of the respective GST enactments but also Section 18(1) of the respective GST enactments. In this case, this Court is not concerned with the situations contemplated under Section 18(1) of the respective GST enactments.

As per Section 17(5) of the respective GST enactments, 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 supplies as stipulated in sub-clause (a) to (i) of Section 17 (5) of the respective GST enactments. Sub-clause (h) to Section 17(5) of the respective GST enactments makes it clear that no input tax credit shall be available in respect of the goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples - The expression goods disposed by way of gift or free samples will specifically apply to the goods whether manufactured or traded by an assessee under the provisions of the respective GST enactments.

Therefore, it cannot be said that the petitioner is entitled to input tax credit for the items meant for sales promotional activities - Be that as it may, since the provisions of the respective GST enactments are clear in terms of Section 17(5)(h) of the Act, the petitioner was not entitled to avail the input tax credit on T-Shirts and Gold Coins purchased for Sales Promotional Activity.

Petition dismissed.

Our Comments:

The judgment serves as a precedent to underscore that promotional expenditures involving goods categorized as gifts or free samples are ineligible for ITC and reinforces the principle that ITC is a statutory privilege rather than an inherent right. Businesses engaging in promotional activities must carefully evaluate the tax treatment of such expenses under GST to avoid similar disputes.