Non distributable promotional products and materials and marketing items, which are used in promotion of the brand and marketing of products, are qualify as capital goods and not as “inputs”
Input tax credit— In the instant case, applicant is engaged in manufacture, distribution and marketing of Knitted and Woven Garments under the brand name of “Jockey”, Swim-wears and Swimming Equipment's under the brand name of “SPEEDO”.
The Applicant had sought advance ruling on classification of goods and services is as under:-
“Whether in the facts and circumstances of the case, the promotional products / Materials and Marketing Items used by the Applicant in promoting their brand and marketing their products can be considered as “inputs” as defined under section 2(59) of the CGST Act, 2017 and GST paid on the same can be availed as input tax credit in terms of section 16 of the CGST Act, 2017?”
Since the applicant is retaining the ownership on these materials and are not a direct cost of the products sold, they can be treated as capital goods and hence needs to be capitalized in his books of accounts. Hence they cannot be treated as “input” as the term excludes capital goods, as claimed by the applicant.
The ITC on GST paid on the procurement of the “distributable” products which are distributed to the distributors, franchisees is allowed as the said distribution amount to supply to the related parties which is exigible to GST. Further the said distribution to the retailers for their use cannot be claimed as gifts to the retailers or to their customers free of cost and hence ITC of GST paid on such procurement is not allowed as per Section 17 (5) of the GST Acts.