2019 (2) TMI 1004 - AAAR - GST

Levy of GST - actionable claims or not - amount of issuance fee retained/forfeited by LSRPL - reward point based loyalty programme - challenge to Advance ruling decision - Held that - It is very clear that the loyalty programme is a programme devised with the aim of generating and maintaining customer loyalty towards the partners entering into agreement with the appellants for the running and managing the overall scheme - It is not the appellant s case that consideration for maintaining and facilitating encashment of payback points is flowing from the end customers. In fact it is admitted position that the amount received upfront from the Partners in respect of the generated payback points is booked as revenue in their account. The consideration for total payback points including those becoming unredeemed ones after validity period, has flowed from the Partners - this consideration has two components - fixed and variable. The fixed component is what has been received by the appellants by the name of Management Fee and the variable component is the amount booked as revenue in respect of the unredeemed leftover payback points. Appellant s contention that AAR has admitted that payback points are in the nature of actionable claim and therefore any consideration is out of the provision of GST is grossly misplaced. In fact Appellant is in possession of points and revenue at their end. Whenever customers claim/ redeem the points it is their liability to honour the claim of Customers. However when there can be no claims by the end-customers after the expiry of validity period, these are no more actionable claims. These stand lapsed at the end of the Customers and Appellant treat the redeemed money as revenue which can never be described as any claim against anyone. The consideration for the unredeemed payback points has already flowed from the Partners. After validity period the same has become appellant s revenue by virtue of the contract for servicing of the loyalty scheme including the points ibid, executed between the Partners and the appellants. Even if it is admitted that there is a provisioning of service by the appellant to the end-customers, there cannot be any such service or actionable claim against the payback points not redeemed by them against anyone.

Summary

Issues Involved:
1. Whether the value of forfeited points constitutes consideration for actionable claims and is outside the scope of GST.
2. Whether the value of forfeited points should be treated as a supply of services and consequently chargeable to GST.

Issue-wise Detailed Analysis:

1. Whether the value of forfeited points constitutes consideration for actionable claims and is outside the scope of GST:

The appellant, M/S Loyalty Solutions and Research Pvt. Ltd. (LSRPL), operates a reward point-based loyalty program. They manage this program for their clients, issuing reward points to end customers which can be redeemed for future purchases. The primary question was whether the value of points forfeited due to non-redemption within their validity period should be considered as consideration for actionable claims and thus outside the scope of GST.

The Deputy Excise & Taxation Commissioner argued that the forfeited points do not meet the criteria for actionable claims as defined in section 3 of the Transfer of Property Act, 1882. According to the definition, actionable claims include claims to unsecured debts or beneficial interest in movable property not in possession of the claimant. Since the reward points are in the possession of the customers, they cannot be termed as actionable claims and would attract GST.

The Advance Ruling Authority concluded that the forfeited points amount to consideration received in lieu of services provided by LSRPL to its clients. Consequently, these do not qualify as actionable claims and are subject to GST as a supply of services under Section 7 of the CGST/HGST Act, 2017.

2. Whether the value of forfeited points should be treated as a supply of services and consequently chargeable to GST:

The appellant argued that the forfeited points should be considered as actionable claims and thus outside the scope of GST. They contended that since the points are in the nature of debt or actionable claims, any amount retained due to unredeemed points should not be chargeable to GST.

The Advance Ruling Authority held that while the points are actionable claims during their validity period, they lose this status post-expiry. The revenue retained from unredeemed points is considered as consideration for the services provided by LSRPL to its partners. This amount is part of the revenue from managing the loyalty program and is therefore liable to GST.

Appellate Authority's Decision:

The Appellate Authority noted that the appeal was time-barred but condoned the delay considering the initial phase of advance rulings. During the personal hearing, the appellant reiterated their position that the forfeited points should be considered actionable claims. However, the Appellate Authority upheld the Advance Ruling, stating that the forfeited points, post-expiry, are not actionable claims and the retained amount is part of the revenue for services provided to the partners, thus subject to GST.

Order:

The appeal was dismissed, and the Advance Ruling was upheld, confirming that the value of forfeited points constitutes a supply of services and is chargeable to GST.