Can ITC be claimed on gold coins given to customers as rewards?

No. They are treated as gifts without consideration; Section 17(5)(h) blocks ITC even if the intent is sales promotion.

Does Section 16 allow ITC because the scheme supports business?

Section 16 is general, but Section 17(5) is a specific block. The block overrides; hence ITC is denied on gifts.

Are these coins really gifts if targets must be met?

The ruling noted no enforceable contract—only promotional materials. The transfer is voluntary and without price; so it is a gift.

Is output GST payable when distributing the gold coins?

No output tax was shown as payable on distribution. Without output tax, allowing ITC would create untaxed credit—hence ITC is blocked.

Do similar schemes by others get ITC?

No, if the items are gifts without consideration. Facts and contracts control. Where consideration exists, analysis may differ.

Re: Biostadt India Ltd

Quick Summary

The AAR held that input tax credit (ITC) cannot be claimed on gold coins distributed to customers under sales schemes. Such coins are treated as gifts without consideration. Under Section 17(5)(h), ITC on gifts is blocked, even if the business intent is sales promotion.

Code: NO.GST-ARA-72/2018-19/B-165
Forum: Maharashtra AAR

Key Provision: Section 17(5)(h) — Gifts
Goods: Gold coins (GST @ 3%)

Issues

Can the applicant claim ITC on gold coins distributed as rewards at the end of a target scheme?
Do parties running similar schemes get ITC on such reward items?

Rules

Section 16 allows ITC on inputs used in the course of business.
Section 17(5)(h) blocks ITC on gifts, regardless of business purpose.
“Gift” (Gift Act, 1858): voluntary transfer without monetary consideration.
Where no output GST is payable on distribution, allowing ITC would create tax-free credits—policy avoids this.

Facts (Timeline)

View Image

Business: Biostadt makes and sells crop protection chemicals and hybrid seeds.

Schemes: Target-based sales incentive schemes for distributors and retailers.

Reward Item: Kharif Gold Scheme 2018—gold coins for meeting targets.

Tax Position: Gold taxed @ 3% (Rate Notif. 1/2018-CGST (Rate)).

AAR Query: Is ITC available on coins given at scheme end? What about similar schemes?

Timeline visual for Biostadt India ITC on gold coins ruling

Arguments

Applicant

Coins push sales; therefore inputs are for business (Section 16).
Rewards are conditional on targets; hence not gifts.

Department / AAR View

Coins are given without price to recipients—this is a gift.
Section 17(5)(h) blocks ITC even if business intent exists.
No output GST on distribution → ITC would create untaxed credit.

Judgment

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The AAR denied ITC. Section 17(5)(h) overrides Section 16. The coins are gifts as there was no enforceable contract—only scheme brochures. Since no output tax arises on the distribution, allowing ITC would go against GST design.

Judgment visual for Biostadt India ITC denial on gifts

Ratio (Legal Principle)

ITC Block on Gifts: Items given without consideration remain gifts even if linked to sales targets. Section 17(5)(h) blocks ITC on such distributions, regardless of business promotion intent.

Why It Matters

Guides sales schemes on what rewards attract ITC blocks.
Helps avoid credit reversals and disputes during audits.
Pushes careful contracting if consideration or taxability is intended.

Key Takeaways

Gold coins given to customers are gifts → ITC blocked.
Section 17(5)(h) prevails over general ITC allowance in Section 16.
Absence of enforceable contract strengthens “gift” classification.
No output tax on distribution → no ITC to avoid free credits.

Mnemonic + 3-Step Hook

Mnemonic: “GIFT? SHIFT OUT ITC.”

GIFT without price,
SHIFT to Section 17(5)(h),
OUT ITC—credit blocked.

3-Step Hook

Is there consideration from recipient?
If no → classify as gift.
Apply 17(5)(h) → ITC blocked.

IRAC Outline

Issue	Rule	Application	Conclusion
Is ITC available on gold coins distributed under a sales scheme?	Section 17(5)(h) blocks ITC on gifts, overriding Section 16.	No enforceable contract; coins are voluntary transfers without price → gifts.	ITC not available; similar schemes also disallowed if facts match.

Glossary

Input Tax Credit (ITC): Credit of GST paid on inputs/services used for business.
Gift: Voluntary transfer without monetary consideration.
Consideration: Payment or value given in return for a supply.

FAQs

Not by itself. Without a binding contract and price for the coin, the transfer is still treated as a gift.

Possibly, if there is consideration and output tax on the reward. The facts and documents must support a supply.

It must be identifiable and contractual. Mere achievement of targets in a promo may still be treated as no consideration.

No. Items sold or supplied for consideration (with output GST) are not gifts. The facts decide.

Publication & SEO Block

CASE_TITLE: Re: Biostadt India Ltd (NO.GST-ARA-72/2018-19/B-165)
PRIMARY_KEYWORDS: input tax credit; gold coins; gifts under Section 17(5)(h)
SECONDARY_KEYWORDS: sales promotion; GST AAR Maharashtra; promotional schemes