Premier Sales Promotion Pvt Limited Vs Union of India (Karnataka High Court)
Vouchers – Whether Goods or Services, leviable to GST and corresponding GST Credit on same
Background:
The Hon’ble Karnataka High Court in M/s Premier Sales Promotion Pvt Limited v. Union of India [Writ Petition No. 5569 of 2022 (T-RES) dated January 16, 2023] has held that, the issuance of vouchers is similar to pre-deposit instruments, which have no inherent value of their own and therefore, it does not fall under the category of supply of goods or services. Hence, vouchers being neither goods nor services, are exempted from the levy of tax.
Recently, the AAAR, Karnataka in the matter of M/s. Myntra Designs Pvt. Ltd. [KAR/AAAR/03/2023 dated February 24, 2023] has upheld the advance ruling passed by AAR, Karnataka while modifying the findings to arrive at its conclusion and has stated that, a registered person can take Input Tax Credit (“ITC”) subject to conditions and restrictions as per Section 16 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and the conditions for eligibility of ITC include an inward supply of goods or services, which are charged to tax by the supplier and used or intended to be used in the course or furtherance of business. However, ITC is restricted for non-business use and forms of supply as mentioned in Section 17(5) of the CGST Act.
Facts:
M/s. Myntra Designs Pvt. Ltd. (“the Appellant”) runs an e-commerce portal where fashion and lifestyle products are sold on its portal. In order to promote its business and increase the footfall on the e-commerce portal, the Appellant proposes to run a loyalty program, where loyalty points will be awarded to customers based on their purchases on the portal. The Appellant purchases the vouchers and subscription packages in the form of coupon codes from vendors, who supply the codes on payment of GST and issues them to eligible customers electronically without charging any fees. The customers can redeem the coupon codes on applicable websites or platforms within the validity period.
In this context, the Appellant filed an application before the AAR, Karnataka (“the AAR”) praying for a ruling on whether it would be eligible to avail the ITC as per Section 16 of the CGST Act 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 accumulated by the said customers.
The AAR ruled on September 14, 2022 (“the Impugned Ruling”) that the Appellant is not eligible to avail ITC as per Section 16 of the CGST Act as the ITC is not available as per Section 17(5)(h) of the CGST Act.
Aggrieved by the advance ruling of the AAR, this appeal has been filed by the Appellant on the grounds that the Section 16(1) of the CGST Act allows them to claim ITC on goods or services used or intended to be used in the course or furtherance of their e-commerce business, regardless of the nature of vouchers and subscription packages and Section 17 (5)(h) of the CGST Act is not applicable to its case.
The Appellant submitted that, that the vouchers and subscription packages cannot be reclassified as ‘goods’ at its end, as they were classified as ‘services’ by the supplier under HS Code 9983 as “other professional, technical and business services”.
The Appellant contended that, the question of classifying the vouchers as ‘gift’, would not arise as vouchers cannot be regarded as ‘goods’ and the bar under Section 17(5)(h) of the CGST Act only applies to ‘goods’.
Further contended that, vouchers and subscription packages are not given as ‘gift’ and 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.
Issue:
Whether the Appellant is eligible to claim ITC on vouchers and subscription packages procured by the company from third-party vendors for its loyalty program, as per Section 16 of the CGST Act?
Held:
The AAAR, Karnataka in KAR/AAAR/03/2023 held as under:
