2022 (9) TMI 842 - AAR - GST

Input Tax Credit - GST paid on 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 input tax credit is an entitlement to a registered person which can be taken subject to such conditions and restrictions as may be prescribed. In this regard it is seen that sub-section (5) of Section 17 prescribes that input tax credit shall not be available in respect of certain supplies. Whether the inward supply i.e. the vouchers merits classification as 'goods' or 'service' and if they are goods, whether they were disposed of by way of gift or otherwise? - HELD THAT - The subscription packages procured by the applicant from third party vendors and supplied to customers against loyalty points, is also a 'voucher' as it places an obligation on the potential supplier to accept it as consideration for supply of goods or services to the holder of the instrument or the customer. Thus the subscription package has all the required qualities to qualify as a voucher. Whether the inward supply of vouchers including subscription packages, by the third party vendors to the applicant, amounts to supply of goods or services? - HELD THAT - The term 'goods' is not restricted to tangible property, instead refers to every kind of movable property which is capable of being transmitted or supplied. Vouchers are a movable property, capable of being transmitted electronically or supplied physically, thus they qualify as 'goods' - Thus voucher is undoubtedly a moveable property and squarely gets covered under intangible goods. Further Schedule II to Section 7 of the CGST Act 2017 stipulates the activities or transactions to be treated as supply of goods or supply of services. Para 1(a) of Schedule II to Section 7 specifies that any transfer of the title in goods is supply of goods. The transaction of supply of vouchers in the instant case involves transfer of the title and hence they are covered under supply of goods. Whether the vouchers are given free of charge as a gift or otherwise? - HELD THAT - It can be seen from the loyalty program that the applicant, on the basis of a particular transaction / purchase by the customer through their e-commerce platform and subject to acceptance of the terms and conditions of the applicant by the customer, allows the customer to earn loyalty points - The redemption of loyalty points, admittedly involves no flow of consideration from the customer. Thus redemption of loyalty points by the customer for receiving vouchers from the applicant implies that the vouchers are issued free of cost to the customer and amounts to disposal of vouchers(goods) by way of gift and squarely covered under clause (h) of Section 17(5) of the Act, ibid.

Summary

Issues Involved:
1. Eligibility to avail input tax credit (ITC) on vouchers and subscription packages procured by the applicant from third-party vendors.
2. Classification of vouchers as 'goods' or 'services.'
3. Applicability of Section 17(5)(h) of the CGST Act 2017 regarding gifts or free samples.

Detailed Analysis:

1. Eligibility to Avail Input Tax Credit:
The applicant sought an advance ruling on whether they can avail ITC on vouchers and subscription packages procured from third-party vendors and provided to customers participating in a loyalty program. The applicant argued that these procurements are for business purposes and fulfill the conditions under Section 16 of the CGST Act 2017, which allows ITC for supplies used in the course or furtherance of business.

2. Classification of Vouchers as 'Goods' or 'Services':
The judgment examined whether vouchers, including e-vouchers, should be classified as 'goods' or 'services.' The definition of 'goods' under Section 2(52) of the CGST Act 2017 includes every kind of movable property, tangible or intangible. The judgment referenced the Supreme Court's observations in Tata Consultancy Services Vs State of Andhra Pradesh (2004) and Vikas Sales Corporation Vs. CCE (1996), concluding that vouchers are movable property and thus qualify as 'goods.'

3. Applicability of Section 17(5)(h) of the CGST Act 2017:
Section 17(5)(h) restricts ITC on goods disposed of by way of gift or free samples. The judgment analyzed the loyalty program's mechanics, noting that customers earn loyalty points based on purchases, which can be redeemed for vouchers and subscription packages. These loyalty points have no monetary value, are non-transferable, and cannot be converted to cash. The redemption involves no monetary consideration from the customer, implying that the vouchers are given free of cost and thus qualify as gifts under Section 17(5)(h).

Conclusion:
The ruling concluded that the applicant is not eligible to avail ITC on the vouchers and subscription packages procured from third-party vendors. The vouchers are classified as 'goods,' and their provision to customers against loyalty points is considered a disposal by way of gift, falling under the restriction of Section 17(5)(h) of the CGST Act 2017. Thus, the input tax credit is not available for these procurements.