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TMI Blog2019 (2) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfers amount equivalent to 0.25 INR per reward point used to the concerned store and the concerned store gives discounts on the ,payment to be received from end-customer to this extent. e) The rewards points have validity period of 36 months, meaning thereby that the customer cannot redeem these reward points, after expiry of 36 months from the date of issuance. f) It may happen that the customer does not or is not able to redeem the rewards points, within their validity period of 36 months from the date of issue. g) in such cases, as per the agreement, the rewards points are forfeited and amount equivalent to 0.25 INR per reward point is being retained by LSRPL 5. The question for advance ruling was that whether this amount of issuance fee retained/forfeited by LSRPL, would amount to consideration for actionable claims and subject to GST. The texts of the questions raised by the applicant is as under: a) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers, who uses these payback points and the applicant transfers the consideration attached with payback points to the vendors. Therefore, the above stated transaction will attract GST. Decision of Advance Ruling Authority 7. Advance Ruling under Section 98 of the CGST/ HGST act 2017 was pronounced as under: I. The value of points forfeited of the applicant on which money had been paid by the issue 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. II. The value of points forfeited of the applicant on which money has been paid by the issue 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eunder The Appellant undertakes the aforementioned business of Loyalty Program through the following business models: A. Redemption Model: i. The Partner allocates Payback Points to various End Customers depending upon the quantum of purchase and the same are uploaded in the Appellant s systems where they are shown as available for the customers to be redeemed / burnt. ii. As and when the customers burn / redeem the Payback Points available with them, the Partners become liable to compensate the Appellant for the underlying value of the Payback Points redeemed by the End Customers at their face value. iii. In such cases, in order to secure payment towards such Payback Points (as and when they are redeemed) the Appellant generally seeks securities such as Bank Corporate Guarantees to guarantee the payment of the value of the Payback Points which are redeemed by the End Customers iv. For providing the said services of loyalty program management, the Appellant realizes fixed fees, variable service fees and enrollment fees from its Partners ( Management Fees ) and discharge GST liability on the same. B. Issuance Model: i. The issuance model is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly basis and require considerable man-hours to constantly track and pay for the same. iii. Partners do not have adequate accounting and technical infrastructure required for recording the data in relation to the issuance and redemption of Payback Points. Therefore, at the time of signing the contract Under any of the afore-mentioned business models, i.e. issuance model or redemption model, the commercial considerations for providing the management services is not influenced by the possible retention of point expiry income by the Appellant, which may or may not happen at a future date under the issuance model. There are certain Partners under the issuance model where End Customers have a 100% redemption rate and there is no point expiry income. It is therefore clear that the only services provided under the present business model is management of loyalty program for which the parties consciously negotiated and agreed on a consideration which is referred here to as the Management Fee. The said Management Fee charged by the Appellant is not influenced in any manner by possible point expiry, Accordingly, commercially agreed amount reflects the true and correct consideration pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be chargeable to GST unless such actionable claims are in the nature of lottery, betting and gambling. iii. In this regard, it was submitted that Section 2(1) of the CGST Act, defines the term actionable claim as follows: (I) actionable claim shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882 (4 of 1882) iv. Further, Section 3 of the Transfer of Property Act, 1882 ( TPA ) defines actionable claims as under: actionable claim means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession either actual or constructive of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. v. In light of the above and various other judicial precedents l it was submitted that Payback Points, which create a beneficial interest in a movable property that is not in possession of the End Customers when such Payback Points are issued/accrued, squarely fall within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt retained by the Appellant post the expiry of the Payback Points is nothing but revenue of the Appellant coming from the respective Partners which has been earned by them, owing to the activities of their providing services to the said Partners in the form of management of Loyalty Program. v. It was further stated that the agreement, entered into by the Appellant with its Partners for the provision of the services of Loyalty Program management, is also evident of the fact that revenue is retained by the Appellant post expiry of Payback Points. vi. The amount retained by the Appellant due to expiry of Payback Points is therefore liable to be considered as consideration for supply of services by the Appellant to its Partners in the normal course of business. Such amount is liable to be added to the value of services being provided by the Appellant to its Partners in terms of the provisions of the CGST Act. 4. Therefore, even though the Impugned Order rightly held that Payback Points are in the nature of actionable claims, it was wrongfully held that the nature of such Payback Points changes post the expiration of its validity period whereby the amount retained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority on 30.07.2018. The date of Communication of the Advance Ruling to the Applicant Appellant was 27th June 2018 as mentioned in the form ibid for Appeal. The Section 100 (2) of the Central GST and Haryana GST Acts of 2017 reads as under: 100. (1) The concerned officer, the jurisdictional officer or an applicant aggrieved by any advance ruling pronounced under sub-section (4) of section 98, may appeal to the Appellate Authority. (2) Every appeal under this section shall be filed within a period of thirty days from the date on which the ruling sought to be appealed against is communicated to the concerned officer, the jurisdictional officer and the applicant: Provided that the Appellate Authority may, if it is satisfied that the appellant was prevented by a sufficient cause from presenting the appeal within the said period of thirty days, allow it to be presented within a further period not exceeding thirty days. (3) Every appeal under this section shall be in such form, accompanied by such fee and verified in such manner as may be prescribed. In terms of Section 100(2) the appeal was required to be submitted within 30 days from the date of communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ii. There are no Invoices issuable for the Actionable Claims ; iii. That it was clear from their written submissions in the Appeal that the entire scheme of loyalty program is theirs; they are the issuers and managers of the loyalty programme; the program/ scheme is open to end-customers and they can independently enrol for the program under which there are numerous partners and the Payback points can be redeemed under several partners. iv. That, the end-customers can directly sue them for non-redemption or deficiency of service; they have the option to sue them directly or the partner from the purchases with whom the points were generated. v. That, they are the generators and issuers of the Payback Points; vi. They are selling the payback points which are actionable claims therefore their revenue in the instant case has resulted from the sale of payback points/ Actionable Claims. vii. That, they charge Management fee from the Partners and the amount incurring on account of unredeemed points has no bearing on the consideration for the services provided to the Partners because in several cases 100% of the genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive payment against the total generated points, upfront in terms of the contract executed with the partners and record the same as revenue in their accounts. Obviously the payment received from the Partners and accounted for as Revenue forms the consideration against the contracted services for the appellant. iii. That it was clear from their written submissions in the Appeal that they entire scheme of loyalty program is theirs; they are the issuers and managers of the loyalty programme; the program/ scheme is open to end-customers and they can independently enrol for the program under which there are numerous partners and the Payback points can be redeemed through several partners. It is observed that no services have been provided by the Appellants to the end-customers against the unredeemed points by the end customers. In view of this fact, the ownership of the loyalty program and its management has no bearing on the nature of the amount generated on account of unredeemed payback points. iv. That, they are the generators and issuers of the Payback Points; It is observed that as a manager and operator of the Loyalty scheme, the appellants are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not the appellant s case that there is a separate agreement with the partners for the same. Admittedly the transaction linked generation of payback points is a part of the service package for the overall management of the scheme by the appellants. It is further observed that the making available of the payback points to the end-customers is also not the selling of these points to the end-customers as the consideration for the same is coming from the Partners only. In fact there is no service either to the end customers, by the appellants on the same corollary that the consideration for the payback points or their maintenance and facilitation of redemption is flowing from the Partners and by virtue of the agreements executed between the appellants and the Partners. vii. That, they charge Management fee from the Partners and the amount incurring on account of unredeemed points has no bearing on the consideration for the services provided to the Partners because in several cases 100% Of the generated points get redeemed and no income occurs on account of unredeemed payback points. It is observed that the since entire consideration for the provided services is fl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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