QUESTION

My client is the manufacturer of sports goods. Every year we renew the agreement with the sports player both domestic and international. The agreement contains the sponsorship amount we are supposed to pay them along with Sports goods given to them for playing internationally and practice purpose. We are paying the RCM on the amount given to player as a sponsorship.... What is the provision of tax on goods given to them as a part of agreement as free of cost products? -> Do I need to pay the RCM on the goods given to them as the part of sponsorship as mentioned in the agreement. -> Do I need to pay the tax on the goods given to them as FOC and pay GST on the similar sale price of the particular goods. Please provide the relevant section.... PS- CBIC is demanding that since goods are given to them as part of written agreement so it is the part of service and we have to pay RCM on sports goods given to them as FOC.


ANSWER

Facts of the case: As per the Sponsorship agreement, sports goods are supplied FOC to the players along with Sponsorship amount.

Law Applicable: SECTION 7 OF CGST ACT
(1) For the purposes of this Act, the expression 'supply' includes''
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

SECTION 2 OF CGST ACT

(31) 'consideration' in relation to the supply of goods or services or both includes''
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) 'the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Interpretation: As per section 2(31) consideration can be in cash or kind, now the issue arises is whether the sports goods supplied free of cost can be considered as consideration in kind?

In our opinion, sports goods are given to players just for performing the service, it cannot be considered as consideration in kind. Thus sports goods given on FOC is outside the definition of supply and GST will not be applicable.

However as sports goods are supplied free of cost, ITC on such goods is not available and thus required to be reversed.

Conclusion: Sports goods given to players free of cost is not covered under definition of supply, GST will not be applicable, thus question of RCM does not arise. (Reply dt. 9/1/2020)