The Madras High Court in the case of M/s.ARS Steels and Alloy International Private Limited Versus The State Tax Officer held that the Input Tax Credit (ITC) under GST cannot be claimed on t-shirts and gold coins purchased for sales promotional activity.
The bench of Justice C.Saravanan has observed that as per Section 17(5) of the respective GST enactments, 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 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 petitioner/assessee has challenged the Orders passed by the Appellate Commissioner under Section 107 of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017. The Orders raised the demand that was earlier confirmed vide Assessment Orders dated 29.11.2019 has been affirmed insofar as denial of Input Tax Credit availed on goods viz., “Gold Coins” and “T-shirts” purchased by the petitioner for sales promotion of the goods manufactured by the petitioner for the respective Assessment Years.
These Writ Petitions have been filed as the appellate remedy under Section 112 of the respective GST Enactments are still illusionary as the GST Tribunal although notified is yet to be constituted.
The petitioner contended that the sales promotional activity are in relation to the business activity and therefore in terms of Section 16(1) of the respective GST Enactments, the petitioner was entitled to take “Input Tax Credit” charged on the supply of both goods or services or both which were used or intended to be used in the course or furtherance of the business.
The petitioner contended that the sales promotional activity has been recognized by the Authorities both under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006 regime and under the Central Excise (CE) Act, 1944 and the jurisprudence on this aspect is well settled by a plethora of the decisions of the Hon’ble Supreme Court of India.
The petitioner argued that the denial of Input Tax Credit on the tax paid on Gold Coins and T-shirts which were offered to intermediate dealers/retail dealers to promote the sales of products of the petitioner ought to have been allowed and ought not to have been disallowed.
The petitioner contended that alleged stock shortage on account of inspection on 28.08.2019 is incorrect as the inspection was carried out not in accordance with well known principles of governing stock audits. Hence, the denial of Input Tax Credit on stock difference is unjustifiable and therefore liable to be interfered with.
On the other hand, the department contended that although the decisions of the Advance Ruling Authorities under Section 98 of the respective GST Enactments, 2017 are not binding on the petitioner, the reasoning of the Maharashtra Authority for Advance Ruling Authority in M/s.Biostadt India Limited in its Order dated 20.12.2018 has clearly explained the legal position.
The department stated that although Section 16(1) of the CGST Act, 2017 allows an Assessee to avail Input Tax Credit, it is subject to Limitation under Section 17(5) of CGST Act, 2017. The question of petitioner having unfettered right to avail Input Tax Credit on solitary reading of Section 16(1) of the CGST Act, 2017 is incorrect.
As per Section 17(5)(h) of CGST Act, 2017 there is a specific embargo on an Assessee from availing Input Tax Credit on not only goods lost but also stolen, destroyed, written off or disposed of by way of gift or free samples.
The court held that the restrictions in Section 17(5)(h) of the respective GST enactments which has been pressed against the petitioner will apply to goods disposed of by way of gift or free samples. The law settled under Central Excise Act, 1944 or other Central Tax enactments are not applicable to the Context of the respective GST enactments.
The court while dismissing the petition held that 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.
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Case Details
Case Title: M/s.ARS Steels and Alloy International Private Limited Versus The State Tax Officer
Case No.: W.P.Nos.31, 33 and 35 of 2022 and W.M.P.Nos.36, 38 and 40 of 2022
Date: 24 .10.2024
Counsel For Petitioner: M.A.Mudimannan
Counsel For Respondent: Amirtha Poonkodi Dinakaran
