The Karnataka Authority of Advance Ruling (AAR) in the case of M/s Myntra Designs Pvt. Ltd. in Advance Ruling No. KAR ADRG 33/2022 dated 14.09.2022, has ruled that Myntra is not entitled to an Input Tax Credit (ITC) on vouchers and subscription packages procured from third-party vendors.

The AAR has observed that Myntra is not eligible to avail of 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 the third party vendors that are made available to the eligible customers participating in the loyalty programme against the loyalty points accumulated by the customers, as the ITC is not available in terms of Section 17(5)(h) of the CGST Act 2017.

The applicant, Myntra, is a major Indian fashion e-commerce company and owns an e-commerce portal. The applicant is engaged in the business of selling fashion and lifestyle products through the portal. The suppliers of such products, intending to sell their products through the applicant's portal, list them on the portal and sell them to customers who place their order using the applicant's portal. Once an order is placed by the customer, the applicant collects money from them towards the purchase of the said order through its portal in the capacity of an e-commerce portal operator and settles the amount payable with the supplier of the said order within a specified period.

The applicant, in order to incentivise the customers visiting the portal/e-commerce platform, proposes to run a loyalty programme by way of issuing points to the customers on the basis of purchases made by the customers from various sellers on the said platform. Participation in the proposed loyalty programme will be conditional on meeting the pre-defined eligibility criteria laid down by the applicant and the same will be subject to acceptance of the applicant's terms and conditions. Furthermore, the customer will be bound by the terms and conditions and any changes or modifications by participating in the program.

The loyalty programme is sought to be introduced with the objective of increasing the customer base of the applicant's platform, which will lead to increased footfall and sales through the platform. Thus, the loyalty programme will directly impact and enhance the amount of commission earned by the applicant in the course of their business.

The issue raised was whether the applicant would be eligible to avail the ITC on the vouchers and subscription packages procured by the applicant from third party vendors that were made available to the eligible customers participating in the loyalty program against the loyalty points earned by the customers. 

The applicant contended that it would procure the vouchers and subscription packages from third-party vendors who raised a GST invoice on the applicant by classifying their outward supply under SAC 9983 as “Other professional, technical, and business services”. The applicant is a GST registered person, engaged in the business of providing an e-commerce platform which is taxable under the GST Acts. The applicant requires more customers to visit the platform and undertake transactions for their outward supply of services, and thus they are entitled to take credit of the GST charged by the vendors on the vouchers and subscription packages, which are used for running the loyalty program. 

The AAR held that the applicant, on the basis of a particular transaction/purchase by the customer through their e-commerce platform and subject to acceptance of the terms and conditions by the customer, allows the customer to earn loyalty points. The applicant in the transaction recovers the full amount from the customer and gives the loyalty points free of cost. The loyalty points, in the applicant's own admission, do not have any monetary value, are non-transferable, and cannot be converted to cash. The redemption of loyalty points, admittedly, involves no flow of consideration from the customer. The redemption of loyalty points by the customer for receiving vouchers from the applicant implies that the vouchers are issued free of cost to the customer and amounts to the disposal of vouchers (goods) by way of gift and is squarely covered under clause (h) of Section 17(5).