GST Implications for Sales and Marketing Activities
This article outlines the impact of Goods and Services Tax (GST) on various sales and marketing activities. It clarifies that marketing efforts promoting sales are considered a supply of goods or services under GST, requiring tax payment based on transaction value even for free promotional items. The piece also details the eligibility for Input Tax Credit (ITC) for marketing service providers, emphasizing a key advance ruling that denies ITC on inputs for promotional merchandise due to their non-asset classification and expense treatment.
GST Implications for Sales and Marketing Activities
Marketing involves promoting a company's products or services to boost sales. Goods and Services Tax (GST) is applicable to marketing services. This article examines how GST affects sales and marketing operations.
Sales and Marketing as a Supply of Goods or Services
Under GST regulations, the term "supply" has a broad definition, encompassing sales, transfers, leases, rentals, disposals, exchanges, and barters. Essentially, any transaction conducted for a business purpose and involving consideration is classified as a supply under GST. Since marketing activities aim to enhance an organization's sales, they are integral business functions. The distribution of items for promotion, therefore, constitutes a supply of goods, and GST applies to such supplies.
GST Treatment on Sales and Marketing Activities
GST is applied to the transaction value, which represents the price paid for the provision of goods or services. Although promotional items are often provided without charge, GST must still be accounted for based on the actual market value at which these goods would typically be sold.
Availability of Input Tax Credit
Service providers engaged in marketing are generally eligible to claim Input Tax Credit (ITC). However, the availability of ITC on promotional items warrants closer examination.
A significant ruling from the Appellate Authority of Advance Ruling in Karnataka sheds light on ITC eligibility for promotional items. Many companies distribute promotional merchandise like calendars, pens, or carry bags featuring their company logo as part of their marketing efforts. The Advance Ruling Authority considers the provision of these promotional items as a supply. However, it does not fall under Schedule 1 (activities without consideration considered as supply) because these items are not treated as assets; instead, their costs are expensed through the Profit and Loss Account.
Consequently, the supply of promotional items is deemed a non-taxable supply for ITC purposes. While GST is applicable on the supply of such items, businesses cannot claim Input Tax Credit on the inputs used to create these items. A similar judgment was made by the Supreme Court in the Coca-Cola case during the pre-GST era.