GST IMPACT ON DIWALI GIFTS

With Diwali round the corner and GST being implemented, the businesses are in a state of confusion as to what would happen to tax paid by them during the purchase of Diwali gifts. Various questions like whether such gifts are eligible for claiming input tax credit? Are these gifts used in the course or furtherance of business? How the invoices should be taken for these gifts. These questions are but obvious because Diwali is one occasion where business tries to fulfil all its obligations towards vendors, customers, government officials, consultants etc.

As per section 16 a taxpayer is entitled to take credit of input tax charged on any supply of goods or services to him which are used in the course or furtherance of his business.  Therefore at the very first instance, we need to understand, what is in the course or furtherance of business. Course of business means usual business practice such as manufacturing, trading etc. It implies those transactions which are directly related to business without which business cannot be run, like purchase of raw material, capital goods etc. On the other hand, furtherance of business means the act of advancement/promotion of business for its sustained growth and profitability. In such a scenario, one thing is very clear that the Diwali gifts which are given to persons related to a business will definitely fall under the definition of furtherance of business. These gifts are generally given to sustain good business relations for the advancement of business activity.

Now question comes that as per clause (h) of section 17(5) of CGST Act 2017, the input tax credit with respect to GOODS disposed of by way of gift shall not be allowed. The definition of goods as per section 2(52) means “every kind of movable property…………..which are agreed to be served before supply or under a contract of supply”.  In order to call a commodity as goods, it is necessary that they are used for the purpose of supply. To call a particular transaction as supply, it should have consideration involved or the same should be mentioned under Schedule I of the Act. There is neither any consideration nor is there any reference of gifts under schedule I except of those given to employees. In such circumstances, these Diwali gifts move out of the ambit of “Goods” from the prospective of business unit purchasing such gifts. It should be noted that the same Diwali gift shall be treated as supply of goods for the vendor who have sold such gifts. As per section 16 what is required is that there should be tax charged on supply of goods by a vendor to a taxpayer. It nowhere restricts that such items which are purchased should also qualify as goods for the purchaser. Therefore it can be construed that Diwali gifts fulfil the conditions of section 16 for claiming of input tax credit.

Another important question is about the sweets and beverages purchased for distribution to employees/workers on Diwali? It should be noted that section 17(5) (b) (i) specifically restricts the input tax credit with respect to food and beverages. Hence any sweets or beverages bought for workers/employees shall not be eligible for claiming input tax credit.

In the situations where the input tax credit is admissible, the business unit should ensure that they obtain proper GST Invoice mentioning their GSTIN, vendor’s GSTIN and other details as required by law. Where all the other conditions like 1) possession of invoice, 2) possession of goods 3) tax actually paid and 4) filing of return etc. are fulfilled, a taxpayer can go ahead and claim input tax credit.

Conclusion: A taxpayer shall be eligible to claim input tax credit on the Diwali gifts purchased by it. There shall be no ITC with respect to the sweets and other eatables purchased for distribution to workers/employees.

Hope this article clears all your ambiguities regarding implication of GST on Diwali Gifts. We wish you a very happy festive season. Have a prosperous and safe Diwali   

     

Thanks and Regards

Keshav R Garg

(B.Com, FCA, CS, ISA (ICAI))

Author: Bharat's GST Ready Reckoner

            A Handbook on GST

Member: Indirect Tax Committee of CII, 

Founder: MyGst.MyTax Foundation

Adviser: Industries Association of Chandigarh

Adviser: Chambers of Chandigarh Industries

Address: 3328, First Floor, Sector 27 D, Chandigarh, India - 160 019

Phones: +91-172-461-3328, +91-98880-90008

Mail: keshavgarg@kdai.in