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Most Litigative Issues on Itc

Sales Promotion item is taxable supply at Value u/r 27


  • The supply of hosiery goods followed by the supply of goods under promotional scheme doesn’t satisfy the condition of being ‘made for a single price’ and the supplies, therefore, cannot be regarded as mixed supply.
  •  further, the said supply shall not fall under the category of ‘composite supply’ as they are not naturally bundled and supplied in conjunction with each other in the ordinary course of business.
  • -supply of hosiery goods and goods under the promotional scheme are separate supply and tax on the supply shall be levied at the rate of each such item as notified by the Government.
  • the applicant intends to provide the goods under the promotional scheme to the retailers at a certain consideration, though at a very nominal price and that too upon fulfillment of the criteria as specified in the scheme, Hence, it cannot be said that the said goods are being given as ‘gift’.
  • the value of the goods supplied under the sales promotion scheme shall be required to be determined as per provision of section 15 r/w rule 27 of the CGST Rules as in the instant case, price is not the sole consideration for the supply.

ITC on Sales Promotional Items


  • Purchase of goods/services (like TV, refrigerators, etc) procured for disbursement in a Promotional scheme to the retailers for their personal consumption are for the furtherance of business and condition u/s 16 is fulfilled.
  • However, the goods/services for personal consumption are restricted under Section 17(5)(g) of the CGST Act – The goods and services are used by the retailers and hence are for personal consumption and the applicant is ineligible to take an input tax credit on the inward supply of these goods/services.
  • Distribution of goods and services to the retailers as per the Scheme is not a ‘Supply’ as defined under Section 7 of the GST Act.
  • Therefore, the tax paid on the goods/services procured for distribution as rewards extended in the scheme is not available as ITC as such rewards have been extended as gifts.

Critical Provisions for Denial of ITC/Payment of Tax


  1. Sales promotion items are ‘non-taxable/ exempt supplies’ on which no ITC is available u/s 17(2) of The CGST Act.
  2. Since sales promotion items are supplied voluntarily they are ‘gifts’ and ITC is blocked u/s 17(5)(h).
  3. They are business assets and hence they are supplies in terms of Schedule I entry 1 “Permanent transfer/disposal of business assets where ITC has been availed on those assets”.

Critical Provisions for allowance of ITC/Non-Payment of Tax

  1. They are not outward supply at all as they are not transferred/disposed of for consideration.
  2. They are not business assets. They are not purchased for generating future economic cash flows.
  3. They are not ‘gifts’ as there is a business purpose for the expenditure. The expenditure is incurred to promote/generate sales. They are not voluntary but incurred due to market requirements to generate demand.
  4. They are at the best moveable property for distribution and increasing sales.
  5. They are business expenditures like any other expenditures which are for the furtherance of business.

Other Such Transactions

  1. ‘Buy More Save More Offers
  2. ‘Buy One Get two’ Offers
  3. Commercial Credit Notes
  4. Refer Circular No. 92/11/2019-GST dated 7th March 2019
Profile photo of CA Vivek Jalan CA Vivek Jalan

Vivek Jalan, from Tax Connect, is a Chartered Accountant & a qualified L.LM & LL.B. He is The Chairman of The Ease of Doing Business Committee therein. He is a member of The Confederation of Indian Industries (CII)- Economic Affairs & Taxation Committee. He is the Member of The Consultative Committee of The Commissioner of SGST. He is also The Member of The Regional Advisory Committee of The Chief Commissioner of CGST. He is advising Large MNCs, PSUs & PAN India Organizations in GST & Income Tax and has offices in Kolkata, Delhi, Bangalore, Mumbai & now Surat. He is a regular Columnist and guest expert in Economic Times, Times of India, Dalal Street Journal, Money Control, Live mint, CNBC, Hindustan Times, Zee Business, Financial Express, other dailies, and business magazines like Business Today, etc. He is also a guest expert on Taxation matters in All India Radio and other media platforms. He is the Editor of Weekly Bulletin TAX CONNECT, a publication on Indirect Taxes and Direct Taxes which reaches more than 70000 professionals.

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