2023 (3) TMI 107 - AAAR - GST

Input tax credit - vouchers and subscription packages procured by the Applicant from third party vendors that are made available to the eligible customers participating in the loyalty program against the loyalty points earned/ accumulated by the said customers - Section 16 of the CGST Act, 2017 - HELD THAT - The eligibility to input tax credit is governed by the provisions of Chapter V (Sections 16 to 19) of the CGST Act. Section 16 states that a registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business. Thus, the primary conditions for eligibility of ITC is that there should be an inward supply of either goods or services or both; such inward supply should be charged to tax by the supplier and such inward supply should necessarily be used or intended to be used in the furtherance of business - Input tax credit is restricted when the goods and services or both are used for non-business purposes or exempt/non-taxable supplies. Further, notwithstanding the entitlement conferred by Section 16(1), certain goods and services and certain forms of supply, as mentioned in Section 17(5) of the CGST Act, are expressly denied input tax credit. The Bombay High Court in SW ENERGY LIMITED VERSUS UNION OF INDIA AND ORS. 2019 (6) TMI 717 - BOMBAY HIGH COURT has held that the scrutiny in writ jurisdiction of the orders passed by the lower Authority and the Appellate Authority of Advance Ruling is minimal. Under the writ proceedings, the Court can examine the order of the Appellate Authority by applying the principles of judicial review and not the principles which apply in case of an appeal. Any attempt by the Court to examine the orders of the Appellate Authority for Advance Ruling on their substantive merits or demerits will amount to enlarging the supervisory power of the High Court under Article 226/227 of the Constitution into an appellate power. Any challenge to the order passed by the Appellate Authority for Advance Ruling before the High Court in writ proceedings will have to be confined to a judicial review which will inter alia include the issue as to whether there has been a failure of natural justice at the appeal stage thereby vitiating the decision-making process leading to the making of the order by the Appellate Authority for Advance Ruling. The Appellant has also made detailed submissions on why the vouchers cannot be termed as 'gifts' given to the customers. Again, we find that examining this aspect is of no relevance since it is already held that input tax credit is not eligible on an inward supply which is held by the High Court as being neither a supply of goods or service. Therefore, it is agreed with the ultimate ruling given by the lower Authority that input tax credit is not available on the vouchers received by the Appellant. Appeal dismissed.

Issues Involved:
1. Eligibility to avail Input Tax Credit (ITC) on vouchers and subscription packages.
2. Classification of vouchers and subscription packages as 'goods' or 'services'.
3. Application of Section 17(5)(h) of the CGST Act, 2017 regarding 'gifts'.
4. Determination of whether vouchers and subscription packages are provided 'free of cost'.

Detailed Analysis:

1. Eligibility to avail Input Tax Credit (ITC) on vouchers and subscription packages:
The primary issue is whether the appellant can avail ITC on vouchers and subscription packages procured from third-party vendors. The appellant argued that these are procured for business promotion and hence should be eligible for ITC under Section 16 of the CGST Act, 2017. However, the lower authority denied ITC based on Section 17(5)(h), which restricts ITC on goods given as 'gifts'. The appellate authority upheld the denial of ITC but modified the reasoning, stating that vouchers are neither goods nor services as per the Karnataka High Court's decision in Premier Sales Promotions Pvt Ltd.

2. Classification of vouchers and subscription packages as 'goods' or 'services':
The appellant contended that the vouchers and subscription packages are classified as 'services' by their suppliers under HS Code 9983. They argued that the classification at the supplier's end should be final and cannot be reclassified at the recipient's end. The lower authority classified the vouchers as 'goods' because they are movable property. However, the appellate authority followed the Karnataka High Court's ruling that vouchers are neither goods nor services, thus making the question of classification irrelevant for ITC eligibility.

3. Application of Section 17(5)(h) of the CGST Act, 2017 regarding 'gifts':
The appellant argued that the vouchers and subscription packages are not 'gifts' as they are provided under a contractual obligation and not free of cost. They cited various judicial precedents to support their claim. The lower authority had concluded that these are 'gifts' and thus restricted ITC under Section 17(5)(h). The appellate authority, while agreeing with the denial of ITC, did not delve into whether the vouchers are 'gifts' due to the finding that vouchers are neither goods nor services.

4. Determination of whether vouchers and subscription packages are provided 'free of cost':
The appellant argued that the vouchers are not provided 'free of cost' as they are part of a loyalty program and the cost is accounted for in the commission charged from sellers. They drew parallels with warranty parts provided by manufacturers, which are not considered 'free of cost'. The appellate authority did not find it necessary to address this argument in detail, given the primary finding that vouchers are neither goods nor services.

Conclusion:
The appellate authority rejected the appeal and upheld the advance ruling, denying ITC on the vouchers and subscription packages. The basis for this decision was the Karnataka High Court's ruling that vouchers are neither goods nor services, thus making them ineligible for ITC. The authority modified the lower authority's findings to align with this legal interpretation.

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