Free prizes not taken as sale

Updated: Mar 14 2014, 08:16am hrs
OUR company deals in car accessories and we have recently launched a new product in the market. As part of the marketing strategy, we will be distributing free prizes to first few buyers of our products under a lucky dip competition. Please clarify whether we need to pay VAT on distribution of such free prizes

Value added tax (VAT) is levied on sale of goods. The term sale has been defined under the Central Sales Tax Act, 1956 and other state VAT legislation as transfer of property by one person to another for a valuable consideration. One essential condition for a transaction to qualify as sale is that it should be for a valuable consideration.

We understand that you would be distributing the prizes free of cost i.e. no consideration/price has been charged or received with respect to the distribution of the goods. Further, the distribution of the prizes is not integrally connected with the sale of the products originally sold by you (since the sale of the original product only entitles the purchaser to a lucky draw coupon). Since there is no sales consideration, the distribution of prizes should not qualify as sale. So, VAT should not be applicable.

Packing of rice exempt from service tax

WE are a packaging company located in Kerala and are engaged in providing packaging services to paddy cultivators located across the state. We have installed various automated machines with the latest PLC controller devices for packing rice. We charge service tax to our customers for providing this services, however, our customers have told us that some recent amendment has been made under service tax law and we need not charge any service tax on our invoices. Please clarify.

Notification 25/2012-ST dated 20 June, 2012 [entry] provided that only loading, unloading, packing, storage and warehousing of agricultural produce was exempt from payment of service tax.

Agricultural produce means any produce of agriculture on which either no processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for the primary market. Recently, the government vide Notification No. 04/2014 - Service Tax dated 17 February 2014 has also exempted services by way of loading, unloading, packing, storage or warehousing of rice.

Given the above, it appears that services provided by you in relation to packing of rice would now be exempt from service tax.

Cenvat credit on goods stored outside factory

WE manufacture meat processing equipment in our plant in Faridabad, Haryana. We import raw materials, parts and components to be used in the manufacturing of the equipment. Because of a scarcity of space in our plant, we are contemplating an option to store the imported raw material at a dockside godown, which is not registered under the Central Excise. The goods will be later dispatched to our plant in Faridabad when our shop-floor team advises so. Please let us know, if the same is possible from a Cenvat perspective

As per Rule 8 of the Cenvat Credit Rules, 2004 (the credit rules), the jurisdictional deputy/assistant commissioner may, in special circumstances having regard to the nature of the goods or shortage of space in the premises of the manufacturer, allow the storage of inputs outside the factory premises.

Accordingly, you can send the inputs outside your factory for storage. However, this would be allowed only with the prior permission of the officer having jurisdiction over your factory.

As regards Cenvat credit, typically, where inputs have been removed from the factory, Cenvat credit is required to be reversed. However, where inputs have been removed from the factory under Rule 8 after permission of the jurisdictional deputy/assistant commissioner, this Cenvat credit need not be reversed, subject to such conditions and limitations as the officer may specify.

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