In Advance Ruling No. KAR ADRG 27/2023 -AAR- AAR (Karnataka) rules supply of gold coins & white goods as incentives by M/s. Orient Cement Limited taxable, even without consideration
Members M.P. Ravi Prasad (State) & Kiran Reddy T (Central) [24-08-2023]

Read Order: In Re: M/s. Orient Cement Limited

Chahat Varma

New Delhi, September 6, 2023: The Karnataka bench of the Authority for Advance Rulings has ruled that the supply of gold coins and white goods to dealers/customers as incentives by M/s. Orient Cement Limited (applicant) would be considered a taxable supply, even if made without consideration.

In the said case, the applicant, engaged in cement manufacturing, had sought an advance ruling on whether their obligation to provide gold coins and white goods to dealers upon them achieving specific purchase targets during promotional schemes would be considered as ‘goods disposed of by way of gift’ and if Input Tax Credit (ITC) would be restricted under Section 17(5)(h) of the Central Goods and Services Tax Act (CGST Act). They also inquired whether this obligation would be viewed as a ‘permanent transfer or disposal of business assets where ITC has been availed on such assets’, making it a taxable supply even if made without consideration, subject to GST under SI. No. 1 of Schedule-I to the CGST Act.

The two-member bench of M.P. Ravi Prasad (State) and Kiran Reddy T (Central) observed that from the promotional and incentive schemes, it was evident that the applicant was supplying goods to their dealers as incentives for achieving specific targets, and this was part of a scheme that both parties were aware of in advance. Furthermore, they noted that this wasn't a simple supply of an unspecified quantity of gold or white goods to any dealer; rather, it involved a specified quantity determined according to the terms and conditions outlined in the scheme documents.

The bench held that because the transfer of gold and white goods from the applicant to the dealers was carried out in exchange for a consideration (as part of the incentive schemes), it fell within the definition of 'supply’.

Consequently, the bench ruled that the applicant's obligation to provide gold coins and white goods to dealers or customers upon them achieving the specified purchase targets during the scheme period would not be categorized as ‘goods disposed of by way of gift’. Therefore, ITC would not be subject to restrictions under Section 17(5)(h) of the CGST Act.

The bench ruled that the applicant's obligation to provide gold coins and white goods to dealers or customers upon them achieving the specified purchase targets during the scheme period would be considered a ‘permanent transfer or disposal of business assets where ITC has been availed on such assets’.  Therefore, it would be treated as a supply, even if made without consideration, and would be subject to GST under Serial No. 1 of Schedule I to the CGST Act.