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Blocked Credit on Free of Cost Supplies - The Gloomy Picture and a Glimmer of Hope
Introduction:
One of the objectives for implementation of GST in India is to ensure seamless flow of credit among business to shift the entire tax burden to ultimate consumers of the supply. In line with this objective, Section 16(1) of the CT Act[1] facilities input tax credit (‘ITC’/’Credit’) availment by a registered taxable person on all inward supply of goods or services that are used in the course or furtherance of his business. However, Section 17(5) blocks credit availment on certain inward supply of goods and services specified thereunder. Clause (h) of section 17(5) provides blocks credit on goods lost, stolen, destroyed, written off or disposed by way of gifts. The presence of this clause in section 17(5) coupled with the Revenue’s perception on the meaning of the term ‘gift’ let the taxpayers into defense. They are forced to forego credit on certain expenditure to avoid potential litigation. These expenditures include expenses incurred towards incentives and promotional schemes, promotional gift articles, dairies, pens etc., to promote brand name and expenses towards Corporate Social Responsibility (‘CSR’) Activities. In the humble opinion of the paper writers, credit is available on this expenditure and are not covered by section 17(5)(h). An attempt is made in this article to bring out the reasons why credit can be claimed on these expenditures.
Read more: Blocked Credit on Free of Cost Supplies - The Gloomy Picture and a Glimmer of Hope