Input Tax Credit is not eligible on the GST
paid for advertisement items like calendars, t-shirts, and pens with the
company’s logo, distributed during business meetings for marketing and business
promotion
By Yogesh Verma (CS/ LLB) /
2 min. read / GST Advance Ruling
Advance Ruling Authority
Name: Rajasthan Authority
for Advance Ruling
Name of the applicant: M/S Mangala Product Private Limited
Date of Ruling - 04.05.2023
Advance Ruling No. RA.J/AAR/2023-24/04
Summary of Advance Ruling:
The applicant, M/s Mangala Product Private
Limited, a manufacturer of MS ingots, sought clarification from the Rajasthan
Authority for Advance Ruling on three issues related to input tax credit (ITC)
on advertisement expenses, bank guarantees by directors, and tax on rolling
mill metal rolls used in production.
However, the Authority declined to provide a
ruling, as the transactions under question had already been undertaken, with
GST paid and returns submitted. The authority ruled that advance rulings apply
to future transactions or activities, not past ones.
Questions Raised by the Applicant:
1. ITC on Advertisement Expenses: Is ITC eligible on the GST paid for
advertisement items like calendars, t-shirts, and pens with the company’s logo,
distributed during business meetings for marketing and business promotion?
2. Bank Guarantee by Directors: Should directors charge any mandatory minimum
percentage for providing personal bank guarantees for company loans? If the
company is eligible for full ITC, will the director’s consideration be treated
as a supply of services?
3. Tax on Rolling Mill Metal Rolls: Can the applicant pay tax on the transaction
value of rolling mill metal rolls used in the production of TMT bars under the
provisions of Section 15 of the CGST Act?
Submission by the Applicant:
1. For ITC on Advertisement Expenses: The applicant claimed that the expenses for
distributing advertisement items were a legitimate business cost, and as per
Section 16(1) of the CGST Act, ITC should be eligible since these expenses were
incurred for the furtherance of business.
2. For Bank Guarantees: The applicant argued that directors should
have the discretion to decide the consideration for providing personal
guarantees for loans, and this service should not be subject to GST if the
recipient is eligible for full ITC.
3. For Rolling Mill Metal Rolls: The applicant stated that since rolling mill
metal rolls are consumables used in production, they should be taxed based on
their transaction value under Section 15 of the CGST Act, as they are not
capital goods.
Findings and Decision of the Authority:
1. Transactions Already Completed: The authority found that the applicant’s
questions related to transactions already completed, with GST paid and returns
submitted. Therefore, the application was not fit for an advance ruling as it
concerns past activities.
2. ITC on Advertisement Expenses: The authority observed that items like
t-shirts and pens distributed for promotion purposes do not fall under the
scope of furtherance of business, and ITC on such items is blocked under
Section 17(5) (g) & (h) of the CGST Act.
3. Bank Guarantees by Directors: The authority ruled that GST is applicable on
personal bank guarantees provided by directors under the Reverse Charge
Mechanism (RCM). The value of such transactions can be determined based on
market rates as per Rule 28 of the CGST Rules.
4. Rolling Mill Metal Rolls: The authority confirmed that the applicant
can pay tax on the transaction value of rolling mill metal rolls, as they are
not capital goods but consumables.
Answers to the Questions:
·
ITC
on Advertisement Expenses:
No, ITC is not eligible for such promotional items as they are considered gifts
and fall under blocked credit as per Section 17(5) of the CGST Act.
·
Bank
Guarantee by Directors:
Yes, directors providing personal bank guarantees must treat it as a supply of
services, and GST is payable under RCM.
·
Tax
on Rolling Mill Metal Rolls: Yes, the applicant can pay tax on the transaction value of
rolling mill metal rolls under Section 15 of the CGST Act.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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