GST to be paid on gold coins, white goods given as incentives, rules AAR

Input tax credit can be claimed as such items are not gifts, says Telangana authority

The distribution of gold coins, white goods and discount coupons given to incentivise sales would be treated as supply of goods and hence the Goods and Services Tax (GST) would be imposed on them, the authority for advance rulings (AAR) of Telangana has ruled. Input tax credit (ITC) can be claimed on the tax paid, it said.

The ruling is important as Section 17(5) (h) of the Central GST (CGST) Act bars claims of ITC on gifts or free samples.

Telangana-based Orient Cement Limited offers different kinds of incentives, including gold coins, white goods and discount coupons, to its dealers and customers who meet sales targets or help the product.

The company believed that these offers cannot be regarded as gifts since dealers and customers are eligible for them on the basis of the terms and conditions of various schemes. It approached the AAR with this and a couple of other queries.

The AAR ruled that these transactions are eligible for ITC. However, the authority did not agree with the company that these offers are not a supply since these are without consideration. GST is imposed on supply of goods and services only.

Sandeep Sehgal, partner at global tax and consulting firm AKM Global, said the judgment was balanced.

"On the one hand, the AAR accepted the stand of the taxpayer that distributing gold coins and white goods as incentives to achieve sales targets does not qualify as gifts. However, on the other hand, it rejected the argument of the taxpayer that such distribution is not a supply, iterating that monetary value of an act done in response to inducement of goods or services is also a consideration," he said.