2018 (7) TMI 1421 - AAR - GST

Levy of GST - amount of issuance fee retained/forfeited by LSRPL - scope of the term actionable claim - supply of services - Whether the value of points forfeited of the applicant on which money had been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period would amount to consideration for actionable claim other than lottery, gambling or betting and therefore would not qualify as supply of either goods or services? Whether the value of points forfeited of the applicant on which money has been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period can be treated as supply of any other goods or services and consequently be chargeable to GST under the CGST, HGST or IGST Act? Held that - Rewards points earned by the end customers for purchase of products of partners to loyalty programme are indeed actionable claim - it is observed that after the expiry of validity date, these reward/payback point can no longer be redeemed/encashed by the end customer and the end customer loses any right over them. Also, as per the definition of actionable claim , given under Section 3 of the Transfer of Property Act, no legal action can be taken by the end customer in connection with enforcing their right over redeeming these reward/payment points This implies that after expiry of their validity period, these reward/payment points are not actionable claim . Consequently, the action of forfeiture of rewards/payment who validity period has lapsed, does not mean that actionable claim been transferred, as after expiry of validity period, these reward/payback points are no longer covered under the definition of actionable claim . Thus, the provisions of Schedule III to CGST Act, 2017 also do not come into picture, under such circumstances. The money equivalent to these reward/payback points, i.e. issuance fee given by partners and lying with LSRPL, which is retained by LSRPL in the name of forfeiting reward/payback points is nothing but revenue of LSRPL coming from the respective partners which has been earned by them owing to the activities of their providing services to the said partners through the loyalty programmes run by LSRPL - this amount is liable to be considered as consideration for supply of services by LSRPL to its partners in the normal course of business and becomes part of remuneration for LSRPL for providing services. LSRPL is already charging service/management fee from the partner, on which LSRPL is paying GST. Thus, the retention of amounts received from partners as issuance fee by LSRPL and retained by LSRPL on account of non-redeeming of reward/payment points by end-customer would be liable to be added to the value of services being provided by LSRPL to their partners - retention of issuance fee after forfeiture of reward/payment points, amounts to charging of amount equivalent to amount retained as issuance fee for the services which have been provided by LSRPL, to its partners. Ruling - The value of points forfeited of the applicant on which money had been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period would amount to consideration received in lieu of services being provided by LSRPL to its clients and thus would be outside the scope of being considered as actionable claim other than lottery, gambling or betting and therefore would qualify as supply of services in terms of Section 7 of the Central Goods and Services Act, 2017/Haryana Goods and Services Act, 2017 and therefore would be within the scope of levy of GST. The value of points forfeited of the applicant on which money has been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period is to be treated as supply of services and consequently be chargeable to GST under the CGST, HGST or IGST Act as the case may be.

Summary

Issues:
1. Whether the amount retained by the company on forfeited reward points qualifies as consideration for actionable claims and is subject to GST?
2. Whether the forfeited reward points can be treated as a supply of goods or services and be chargeable to GST?

Analysis:

Issue 1: The applicant, a loyalty solutions company, manages a reward point-based loyalty program for its clients/partners. The company retains an amount equivalent to 0.25 INR per reward point forfeited by customers who fail to redeem them within the validity period. The question is whether this amount constitutes consideration for actionable claims and is subject to GST.

Discussion: The Deputy Excise & Taxation Commissioner opined that the retention of the issuance fee by the company is not an actionable claim as the customers possess the reward points. The issuance fees received from partners and retained by the company are considered revenue earned for providing services. The agreement between the company and partners specifies that the issuance fee is retained by the company in case of non-redemption of points.

Findings: The Authority concluded that the amount retained by the company on forfeited reward points is not an actionable claim. It is considered revenue earned for providing services to partners and is liable to be added to the value of services provided. Therefore, it falls within the scope of being considered as a supply of services and is subject to GST.

Issue 2: The second issue is whether the forfeited reward points can be treated as a supply of goods or services and be chargeable to GST under the relevant Acts.

Discussion: The applicant argued that the redemption points issued to clients are in the nature of actionable claims and should not be leviable to GST. However, after detailed discussions, it was admitted that the case falls under the relevant section of the Act.

Findings: The Authority ruled that the value of forfeited reward points, for which money has been paid by the issuer, constitutes a supply of services and is chargeable to GST under the applicable Acts.

In conclusion, the amount retained on forfeited reward points is considered as consideration for services provided by the company, falling within the scope of supply of services and subject to GST under the CGST, HGST, or IGST Act.