Order Date – 14 September 2022

Facts –

• The Applicant, M/s. Myntra Designs Private Limited is a major Indian fashion e-commerce company & owns an e-commerce portal (www.myntra.com); engaged in the business of selling of 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.
• The Applicant, in order to incentivise the customers visiting the portal/ e-commerce platform, proposes to run a loyalty program, by way of issuing points to the customers on the basis of purchases, effected by the customers from various sellers on the said platform.
• The loyalty program operates in a specified manner & the applicant does not give the vouchers and subscription packages to every customer but is restricted only to the eligible customers participating in the said loyalty program, subject to the terms and conditions.
• The applicant procures the vouchers and subscription packages from third party vendors upon payment of GST and provides the same to customers on redemption of the loyalty points earned by them. Applicants themselves are not in the business of supply of the said vouchers and subscription packages. The vendors will be raising invoice on the applicant by classifying their outward supply under SAC 9983 as “other professional, technical and business services”.
• The expenditure incurred by the applicant is allowed under Section 37(1) of the Income Tax Act in computing the income chargeable under the head “Profits and gains of business or profession”.
• The applicant submitted that the time of supply of vouchers would be the date of issue of voucher and accordingly GST would be levied on such procurements made by the applicant where the supply is identifiable at the time of supply of voucher by the third-party vendor, in terms of Section 12 (4) (a) of the CGST Act 2017.

Issues –

• 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?

Order –

• The authorities observed that the subscription packages procured by the applicant from third party vendors and supplied to customers against loyalty points, is also a “voucher’ as it places an obligation on the potential supplier to accept it as consideration for supply of goods or services to the holder of the instrument or the customer. Thus the subscription package has all the required qualities to qualify as a voucher.
• Further, voucher is undoubtedly a moveable property and squarely gets covered under intangible goods. Further Schedule II to Section 7 of the CGST Act 2017 stipulates any transfer of the title in goods is supply of goods. The transaction of supply of vouchers in the instant case involves transfer of the title and hence they are covered under supply of goods.
• The applicant in the transaction recovers the full amount from the customer and gives the loyalty points free of cost. Further, the said loyalty points, in the applicants 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. Thus 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 disposal of vouchers(goods) by way of gift and squarely covered under clause (h) of Section 17(5) of the Act, ibid.
• Thus, the authorities held that the applicant is not eligible to avail the input tax credit on vouchers and subscription packages 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.