09.03.2023: Myntra not eligible for ITC on gift vouchers sourced from third party, rules Karnataka AAAR

Myntra is not eligible for input tax credit (ITC) on the gift vouchers sourced from third party and made available to customers participating in loyalty program, Karnataka Appellate Authority for Advance Ruling (KAAAR) has upheld.

Disposing an appeal filed by e-commerce retailer, Myntra, KAAAR said the primary condition for eligibility to the 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.

“In this case, as held by the Karnataka High Court in the decision (of Premier Automobiles, 2023), the vouchers are held to be neither goods nor services and cannot be taxed to GST. Therefore, when the vouchers interned to be procured by the Appellant is neither goods nor services, the question of eligibility of ITC does not arise,” it said in a recent order by upholding the ruling of KAAR (Karnataka Authority for Advance Ruling) with a slight modification.

Last year, Myntra approached AAR saying that it proposes to run a loyalty programme with customers earning loyalty points on their purchases. The portal would allow buyers, subject to some terms and conditions, to redeem these points in exchange of vouchers and subscriber packages. The retailer sourced these vouchers and subscription packages from a third party and made a payment along with Goods and Services Tax (GST). The question was whether input tax credit would be available on these vouchers?

Section 16 of CGST Act deals with eligibility and conditions for taking input tax credit while section 17 prescribes norms for apportionment of credit and blocked credits. Sub section 5(h) of section 17 makes it clear that ITC will not be available in case of “goods lost, stolen, destroyed, written-off or disposed of by way of gift or free.” The application was settled on the basis of the said sub provision.

KAAR noted that the participation in loyalty programme is based on meeting the pre-defined eligibility criteria and subject to acceptance of the terms and conditions by the customer while loyalty points are non-transferable (cannot be converted into cash). According to KAAR, redemption of loyalty points by customer for receiving the vouchers implies that the vouchers are issued free of cost (FOC) and amounts to disposal of vouchers (goods) by way of gift which is “squarely covered under section 17 (5)(h) of the CGST Act.

Citing the decision of Supreme Court in TCS and Vikas Sales Corp, KAAR envisaged that e-voucher is a movable property and is capable of being transmitted electronically and supplied physically, and thus, qualify as goods. KAAAR has modified this order by restating the ruling of Karnataka High Court which stated that vouchers are neither goods nor services.

Section 103 of the CGST Act makes it clear that the order of the AAR or AAAR are binding on the applicant and the jurisdictional officer of the applicant.

Source: The Hindu Business Line 

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