TMI Blog2023 (3) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... arged to tax by the supplier and such inward supply should necessarily be used or intended to be used in the furtherance of business - Input tax credit is restricted when the goods and services or both are used for non-business purposes or exempt/non-taxable supplies. Further, notwithstanding the entitlement conferred by Section 16(1), certain goods and services and certain forms of supply, as mentioned in Section 17(5) of the CGST Act, are expressly denied input tax credit. The Bombay High Court in SW ENERGY LIMITED VERSUS UNION OF INDIA AND ORS.[ 2019 (6) TMI 717 - BOMBAY HIGH COURT ] has held that the scrutiny in writ jurisdiction of the orders passed by the lower Authority and the Appellate Authority of Advance Ruling is minimal. Under the writ proceedings, the Court can examine the order of the Appellate Authority by applying the principles of judicial review and not the principles which apply in case of an appeal. Any attempt by the Court to examine the orders of the Appellate Authority for Advance Ruling on their substantive merits or demerits will amount to enlarging the supervisory power of the High Court under Article 226/227 of the Constitution into an appellate pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir 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 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? 5. The AAR vide its order KAR ADRG No 33/2022 dated 14th September 2022 gave the following ruling in respect of the above questions: The applicant is not eligible to avail input tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 2007 (217) ELT 399 (Tri-Mumbai) c) Collector vs Hindustan Lever Ltd 2000 (121) ELT 437 d) Tata Oil Mills Co Ltd vs Commissioner 1997 (91) ELT 144 6.3. The Appellant submitted that once the vouchers and subscription packages have been procured by them as 'services', they will be made available to the customers as 'services' and Section 17(5)(h), which is applicable to 'goods' cannot be invoked; that the AAR has erroneously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranty 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 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 are free of cost; that the term 'gift' has not been defined under CGST Act but as per Black's Law Dictionary, it has been defined as the voluntary transfer of property to another without compensation. ; that under the Transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 against such invoices. He submitted that the Appellant fulfils all the conditions for availing input tax credit as laid down in Section 16 of the CGST Act and also are not restricted by any of the provisions of Section 17. He also submitted that the provisions of Section 17(5)(h) will not apply in their case since the inward supply in question is received as a service and not goods; that this is a business expenditure and so it is in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 more detailed submission on the laws relating to 'gifts'. The Advocate agreed to furnish the required documents and details within a week's time. 8. The Advocate vide letter dated 24th January 2023 requested for an additional two week's time to submit the required documents as collecting the same was taking longer than expected. 8.1. The Counsels for the Appellant submitted the additional written submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 illustrative list of goods and services which can be procured on redemption of the codes/e-vouchers issued to the eligible customers under the loyalty program, viz: - a. Coupon for a limited period subscription to an Over the Top ( OTT ) platform; b. Coupon for a limited time period premium subscription to an online dating platform; c. Coupon for a discount on pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transferred voluntarily and not as a result of a contractual obligation and no advantage of material character was received by transferor. They also made a reference to the H on'ble Gujarat High Court decision in Commissioner of Gift-Tax v. Nandkishore Sakarlal (Individual), 2003 SCC OnLine Guj 359 and the case of Birla Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 restrictions for availment of ITC wherein the entitlement of input tax credit is made available only to those goods and services or both which are used for business purposes or for taxable supplies, including zero-rated supplies. Input tax credit is restricted when the goods and services or both are used for non-business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 , the National Appellate Authority for Advance Ruling, the Appellate Authority, the Appellate Tribunal and the Authority referred to in sub-section (2) of section 171; 13. The appeal mechanism under GST which is covered in Chapter XVIII of the CGST Act, has a four-tier appeal mechanism. The first stage of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supplier. In this case, as held by the Karnataka High Court in the decision cited supra, the vouchers are held to be neither goods nor services and cannot be taxed to GST. Therefore, when the vouchers intended to be procured by the Appellant is neither goods nor service, the question of eligibili ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
