AAR Maharashtra rules out giving input tax credit for gold schemes

The Authority for Advance Ruling (AAR), Maharashtra, has ruled against input tax credit for the gold schemes, offered by companies to its customers to encourage them to meet the business targets.

AAR rulings are state-specific but these have persuasive value to be taken as a precedent.

Biostadt India Ltd, a company engaged in manufacturing and distribution of crop inputs and hybrid seeds, had approached AAR on whether a gold scheme announced by it would allow it to claim input tax credit.

The company had come out with a ‘Kharif Gold Scheme, 2018’ under which it offers 10 gm of gold coin to anyone buying a stipulated amount of products from it. Similarly, anyone buying these products worth a minimum sum was offered eight grams of gold coin. Gold attracts a 3 per cent goods and services tax (GST).

AAR ruled that the company cannot claim input tax credit on procurement of gold coins, which are to be distributed to customers.

It treated the scheme as gifts.

“Input tax credit on gifts will not be available when no GST is paid on its disposal,” it said.

AAR relied on the Section 17(5)(h) of the Central GST Act, which says, “...input credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

Abhishek Jain, tax partner, EY India, said, there had been a long-drawn debate on the scope of the term ‘gift’ and the government should consider issuing an appropriate clarification on the same and credit eligibility on such spending.