AAAR: ITC Not Available on Vouchers and Subscription Packages Procured by Myntra from Third-party Vendors

AAAR: ITC Not Available on Vouchers and Subscription Packages Procured by Myntra from Third-party Vendors

The Appellate Authority of Advance Ruling (AAAR) observed that the primary condition for eligibility to Input Tax Credit (ITC) is that there should be an inward supply of either goods or services or both on which tax is charged by the supplier. The vouchers are held to be neither goods nor services and cannot be taxed to Goods and Service Tax (GST), therefore the question of eligibility of ITC does not arise.

The appellant/applicant- M/s. Myntra Designs, owns an e-commerce portal, www.myntra.com, and is a major Indian fashion e-commerce company. The appellant is in the business of selling fashion and lifestyle products through the said e-commerce portal. In order to enhance their business, the appellant proposes to run a loyalty program where loyalty points will be awarded on the basis of purchases made by customers on its e-commerce platform.

Participation in the program will be based on meeting the pre-defined eligibility criteria and subject to the customer's acceptance of the terms and conditions. The appellant, through its portal, would make the vouchers and subscription packages available to those customers who wished to redeem the loyalty points earned.

The appellant approached the Advance Authority Ruling (AAR) to sought ruling on the following questions:

Whether the Applicant would be eligible to avail the input tax credit, in terms of Section 16 of the CGST Act, 2017 on the 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?

The AAR vide its order dated 14th September, 2022 had observed, that the applicant was not eligible to avail the input tax credits on the 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 or accumulated by the said customers.

The appellant challenged the ruling of the AAR. The appellant opposed that the vouchers are not provided to the customers ‘free of charge.’ Although consideration was not expressly mentioned, it would be accounted for in the commission charged from the sellers, on which applicable GST would be discharged.

The appellant submitted that the AAR had erred in holding that merely because loyalty points does not have any monetary value associated with them and cannot be converted into cash or used in place of cash and cannot be used in exchange for cash, the vouchers issued by the Appellant on redemption of the said points by the customers were ‘free of cost,’ and that the term ‘gift’ has not been defined under CGST Act. Thus, where the vouchers and subscription packages are not given gratuitously by the Appellant, the question of giving any ‘gift’ to the customers does not arise and Section 17(5)(h) cannot be invoked for restricting ITC.

The two-member bench of Ranjana Jha and Shikha C reiterated that the eligibility to ITC is governed by the provisions of Chapter V (Section 16-19) 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.

Pertinently, the bench stated that as mentioned in Section 16(1) of the CGST Act, the fulfillment of these primary requirements was subject to the conditions and restrictions prescribed. ITC is restricted when the goods and services or both are used for non-business purposes or exempt/non-taxable supplies.

The bench relied on the decision of the Karnataka High Court in the case of M/s Premier Sales Promotion Pvt Ltd versus Union of India and others., in which it was held that vouchers do not fall under the category of goods and services, and therefore, the issue and supply of vouchers would not attract GST.

The AAAR further emphasized that the provisions of Section 103 of the CGST Act, make it clear that the orders of the Authority for Advance Ruling (AAR) and the AAAR are binding on the applicant and the jurisdictional officer of the applicant. Further, the orders of the AAR and the AAAR are not adjudication orders as the said Authorities were specifically excluded from the definition of ‘adjudicating authority’ given in Section 2(4) of the CGST Act.

The AAAR, modified AAR’s ruling and held that the primary condition for eligibility to input tax credit is that there should be an inward supply of either goods or services or both on which tax is charged by the supplier. The vouchers were held to be neither goods nor services and cannot be taxed under the GST. Therefore, when the vouchers intended to be procured by the appellant are neither goods nor services, the question of eligibility for ITC does not arise.

Due to aforesaid reasons, appeal filed by appellant was rejected.