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TMI Blog2023 (3) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... over Embassy Tech Village, Outer Ring Road, Devarbisanahalli Varthur Hobli, Bengaluru Urban, 560103 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 33/2022 dated 14th September 2022. Brief Facts of the case: 3. The Appellant owns an e-commerce portal www.myntra.com and is a major Indian fashion e-commerce company. The Appellant is engaged in the business of selling of fashion and lifestyle products through the said e-commerce portal. In order to enhance their business, the Appellant proposes to run a loyalty programme where loyalty points will be awarded on the basis of purchases made by the customer on its e-commerce platform. The participation in the said program will be based on meeting the pre-defined eligibility criteria and subject to acceptance of the terms and conditions by the customer. The Appellant through its portal, would make the vouchers and subscription packages available to those customers who wish to redeem the loyalty points earned / accumulated. 4. The Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question: "Whether the Applicant would be eligible to avail the input tax cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spend to promote its e-commerce business and therefore, ITC of the tax paid cannot be restricted. They relied on Bombay High Court decision in the case of Coco Cola India Pvt Ltd vs Commissioner of C.Ex Pune-III [2009 (15) S.T.R 657 (Bom)] wherein it was held that the phrase "activities relating to business" are words of wide import and can cover all the activities that are related to the functioning of a business. 6.2. The Appellant submitted that once vouchers and subscription packages have been classified as services at the supplier's end, the same cannot be reclassified as 'goods' at the Appellant's end as has erroneously been done by the AAR in the impugned ruling; that the suppliers have classified the vouchers and subscription packages as 'services' under HS Code 9983 as "other professional, technical and business services". They relied on the following judicial decisions wherein it was held that re-classification cannot be undertaken at the recipient's end having not questioned the same at the supplier's end: a) M/s SAIL vs CCE&C, Bhubaneshwar - 2022 (9) TMI 740- Supreme Court b) Commissioner of C.Ex, Goa vs Courtaulds Packaging (I) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd subscription packages cannot be disputed although the same is not explicitly specified. Therefore, the finding that there is no flow of consideration is perverse and liable to be set aside. They relied on the Supreme Court decision in Commissioner of Sales Tax vs Prem Nath Motors (1978 SCC Online Del 67) where it was held that irrespective of the transfer of property in goods, no tax could be levied where part or parts were replaced under warranty and no consideration was separately specified as the same was already included in the price determined and paid by the customer at the time of sale of the vehicle. They submitted that, in the present case, where the consideration for vouchers and subscription packages, although not explicitly specified, would be already accounted for in the commission charged from the sellers as determined by the Appellant, no GST will be required to be separately paid by the Appellant; that merely because consideration is not explicitly specified in a transaction, the same cannot be automatically termed as a 'gift'. 6.6. They submitted that the AAR has erred in holding that merely because the loyalty points do not have any monetary value asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant. Another opportunity for hearing was given on 17th January 2023. The hearing on 17th January 2023 was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant was represented by Mr Tarun Gulati, Senior Advocate and Mr Kishore Kunal, Advocate. 7.1. The Senior Advocate explained gave a brief background of the case and stated that the Appellant is an online fashion platform and it has a scheme for its customers where, based on their footfall and their purchases it grants them reward points; that on the basis of the reward points, the customer is eligible to redeem the points for vouchers and subscription packages. He drew attention to the summary of how the loyalty program will operate which was narrated at Para 7 of the statement of facts made before the lower Authority. He submitted that the Appellant Myntra does not issue the vouchers but purchases them from elsewhere. The vendor who supplies the vouchers to the Appellant raises an invoice under SAC 9983 on payment of GST. The question asked by the Appellant before the AAR was whether they can avail input tax credit aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of U01 vs Steel Authority of India wherein at Para 16 it was held that the classification of a product at the consignor's end should be treated as final and cannot be changed or questioned at the consignee's end. He also relied on 2 other judgments of the Tribunal which are on the same lines viz. Tata Oil Mills and Courtaulds Packaging Therefore, he submitted that the lower authority has erred in deciding that the vouchers are goods when in actual fact the Appellant has received the vouchers from the vendor as services; that the vouchers are not tradable and are only money value which are redeemable by the customer against particular services or goods. 7.3. On a specific query from the Bench regarding the kind of goods and/or services offered against the vouchers, he agreed to submit an illustrative list of the goods and services which can be purchased on their platform using the vouchers. The Bench also requested the Appellant to furnish copies of the contract with the vendor who supplies the vouchers as well as the agreement entered into by the Appellant with the customers outlining the terms and conditions for redemption of the vouchers. The Bench also called for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o credit loss, interest and penalties; 8.2. The Appellant submitted that they will communicate the terms and conditions of the proposed loyalty programme to its eligible customers. They submitted a copy of the terms and conditions for redemption of codes wherein it is stated as follows: - a. Codes will be given only to the eligible loyalty programme member during the offer period for redemption; b. Offer can be availed by the eligible member only once; c. Offer will be valid for a limited period only and the Appellant will have the right to terminate the offer without notice; d. Offer cannot be clubbed with any other discount/offer/promotion on the Appellant's platform; e. Offer shall not be settled with cash in lieu by the Appellant and the offer is non-transferrable; f. All decision pertaining to redemption of this offer is at sole discretion of the Appellant; g. Appellant reserves right to disqualify from the benefits of this offer on account of any fraudulent activity; They submitted that a bare perusal of the above discloses that these vouchers are given by the Appellant only to the eligible customers under contractual obligation. 8.3. They submitted an il ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as "the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee"; that the term 'gift' has been exhaustively dealt by the Hon'ble Supreme Court in Sonia Bhatia v. State of U.P. [1981] 2 SCC 585, wherein it has been held that unless the transfer is gratuitous, transfer cannot be considered to be `gift'; that in the present case there is no gratuitous transfer; that mere absence of a consideration does not lead to the assumption that the issuance of electronic gift vouchers to eligible customers amounts to a 'gift' by the Appellant. 8.6. They submitted that a voluntary transfer made for a business purpose under a contractual obligation cannot be considered as gratuitous and therefore, cannot be considered as a 'gift'. They relied on the Supreme Court decision in the case of Asokan v. Lakshmikutty, (2007) 13 SCC 210 and Federal Commissioner of Taxation v. McPhail [1968] 117 CLR 111 26 March 1968 wherein the Hon'ble Court has observed that, to constitute a 'gift', the property should be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant is eligible for the input tax credit (ITC) on the procurement of the vouchers and subscription packages from third parties. 11. The eligibility to input tax credit is governed by the provisions of Chapter V (Sections 16 to 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. Thus, the primary conditions for eligibility of ITC is that there should be an inward supply of either goods or services or both; such inward supply should be charged to tax by the supplier and such inward supply should necessarily be used or intended to be used in the furtherance of business. However, as mentioned in Section 16(1) of the CGST Act, the fulfilment of these primary requirements is subject to the conditions and restrictions prescribed. The conditions which are required to be met for eligibility to ITC are enumerated in sub-section 2 of Section 16. Section 17 of the CGST Act lays down the rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd December 2021 passed by this Authority. We find that the petitioner has challenged the order of this Authority before the High Court in writ proceedings and the Hon'ble High Court has proceeded to examine the matter on merits in the same manner as an appeal proceeding. The GST statute does not provide for further appeal against the orders of the Appellate Authority for Advance Ruling. The provisions of Section 103 of the CGST Act make it clear that the orders of the Authority for Advance ruling and the Appellate Authority for Advance ruling are binding on the applicant and the jurisdictional officer of the applicant. Further, the orders of the AAR and the Appellate AAR are not adjudication orders as the said Authorities are specifically excluded from the definition of 'adjudicating authority' given in Section 2(4) of the CGST Act. Section 2(4) of the CGST Act reads as follows: 'Adjudicating authority' means any authority. appointed or authorised to pass any order or decision under this Act, but does not include the Central Board of Indirect Taxes and Customs, the Revisional Authority. the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Authority for Advance Ruling before the High Court in writ proceedings will have to be confined to a judicial review which will inter alia include the issue as to whether there has been a failure of natural justice at the appeal stage thereby vitiating the decision-making process leading to the making of the order by the Appellate Authority for Advance Ruling. 14. Nonetheless, the decision of the Hon'ble Karnataka High Court dated 16-01-2023 in the case of M/s Premier Sales Promotions Pvt Ltd., holding that 'vouchers' are neither goods nor services is to be respected as the law applicable as on date until the decision is stayed or reversed by a higher court on an appeal by the Department. Hence until the jurisprudence on this issue reaches a finality, we respectfully follow the decision rendered by the High Court on the taxability of vouchers. Having thus said, we move to the point of eligibility of input tax credit on the vouchers intended to be purchased by the Appellant. As already stated above, 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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