In Re: M/s. Loyalty Solutions and Research Private Limited, Gurugram
GST
2019 (2) TMI 1004 – APPELLATE AUTHORITY FOR ADVANCE RULING, HARYANA – 2019 (22) G. S. T. L. 297 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING, HARYANA – AAAR
Dated:- 23-10-2018
HAAAR/2018-19/01
GST
SMT. ASHIMA BRAR AND MRS. MANORANJAN K VIRK, MEMBER
BRIEF FACTS OF THE CASE:
The Present appeal has been preferred by the applicant M/S Loyalty Solutions and Research Pvt. Ltd. (LSRPLI) against the Advance Ruling No. HAR/HAAR/R/2017-18/4 Dated 11.04.2018 = 2018 (7) TMI 1421 – AUTHORITY FOR ADVANCE RULING – HARYANA passed in their application dated 12.01.2018.
2. The applicant namely M/s. Loyalty Solutions and Research Pvt. Ltd. (LSRPL), owns and operates a reward point based loyalty programme that is integrated towards it partners and their customers. Under this programme, LSRPL is providing certain services to its clients/ partners such as M/s. Nice Chemicals Pvt. Ltd. (NICE). Th
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. The pattern of this loyalty programme is as follows.
a) on purchase of products of “partners” to this loyalty programme, end-customers get reward/ payment points.
b) These rewards points can be redeemed by customers, while making future purchases of products of “partners”.
c) In pursuance to these reward pöints management, “partner” transfers arnount equivalent to 0.25 of INR, per reward point, as issuance charges to LSRPL
d) Whenever any purchase is made by end customer, by using/ redeeming rewards points, LSRPL transfers amount equivalent to 0.25 INR per reward point used to the concerned store and the concerned store gives discounts on the ,payment to be received from end-customer to this extent.
e) The rewards points have validity period of 36 months, meaning thereby that the customer cannot redeem these reward points, after expiry of 36 months from the date of issuance.
f) It may happen that the customer does not or is not able to redeem the rewards points, within the
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017 and therefore would be outside the scope and levy of GST.
b) Whether the value of points forfeited of the applicant on which money has been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period can be treated as “supply of any other goods or services and consequently be chargeable to GST under the CGST, HGST or IGST Act?
Comments of the concerned officer U/S 98(1) OF THE CGST HGST ACT, 2012
6. The Deputy Excise & Taxation Commissioner (ST), Gurgaon (East), vide letter No.3086 dt.22.03.18, submitted the requisite comments on both the above questions raised by the applicant, as under:
a) The applicant recovers the underlying value of 0.25 INR per reward point to the Customers of the partners enrolled under the loyalty programme and on issuance of such points the applicant charges issuance fees. However, the applicant nowhere submits that the amount received by the applicant in return of issuing points are
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oints are issued in exchange of some consideration and acts as an discount for the customers, who uses these payback points and the applicant transfers the consideration attached with payback points to the vendors. Therefore, the above stated transaction will attract GST.
Decision of Advance Ruling Authority
7. Advance Ruling under Section 98 of the CGST/ HGST act 2017 was pronounced as under:
I. The value of points forfeited of the applicant on which money had been paid by the issue of points on account of failure of the end customers to redeem the payback points within their validity period would amount to consideration received in lieu of services being provided by LSRPL to its clients and thus would be outside the scope of being considered as 'actionable claim' other than lottery, gambling or betting and therefore would qualify as supply of services in terms of Section 7 of the Central Goods and Services Act, 2017/ Haryana Goods and Services Act, 2017 and therefore would be with
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t for making purchases from Partner stores. The “Payback Points” are issued by the Partner.
(2) The Payback Points so issued can be redeemed by the End Customers with any of the 'Redemption Partners' for buying goods or services within the 'Payback Coalition Network'. Accordingly, such Payback Points are in the nature of 'debt' or 'actionable claims' which are to be honoured by the Appellant as and when presented for redemption.
(3) Since the points are 'debt' or 'actionable claims' which are to be honoured by the Appellant, the underlying value of the Payback Points so issued to / or redeemed by the End Customers is recovered by the Appellant from its Partners either at the time of their issuance or at the time of their redemption depending on the business model opted by the Partners.
(4) The Payback Points so issued, normally have a validity period of 36 months during which the said points can be redeemed by the End Customers for any of the reward options available to them.
(
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redeemed / burnt.
ii. As and when the customers burn / redeem the Payback Points available with them, the Partners become liable to compensate the Appellant for the underlying value of the Payback Points redeemed by the End Customers at their face value.
iii. In such cases, in order to secure payment towards such Payback Points (as and when they are redeemed) the Appellant generally seeks securities such as Bank Corporate Guarantees to guarantee the payment of the value of the Payback Points which are redeemed by the End Customers
iv. For providing the said services of loyalty program management, the Appellant realizes fixed fees, variable service fees and enrollment fees from its Partners (“Management Fees”) and discharge GST liability on the same.
B. Issuance Model:
i. The issuance model is identical to the aforesaid model except the fact that the payment of INR 0.25 per Payback Point is made upfront to the Appellant by the Partner without waiting for actual redemption.
ii. The
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retained by the Appellant.
It is pertinent to note that the Appellant always offers its Partners with the option to choose between either of the afore-mentioned business models where it is always up to the Partner as far as selection of business model is concerned.
It is further pertinent to note that some of the Appellant's biggest Partners have opted for the redemption model which can be inferred from the fact that during the F.YF.Y. 2014-15, F.Y. 2015-16 and F.Y. 2016-17 60%, 51%, 49% of the revenue (excluding other income) earned by the Appellant respectively, was from redemption model partners as compared to 31 %, 43%,47% respectively, earned by the Appellant from the issuance model.
In this regard, some of the commercial considerations due to which the Partners opt for issuance model, are as follows:
i. Partners are reluctant to provide appropriate bank guarantees to the Appellant to guarantee the value of payback points which are redeemed by the End customer.
ii. Partners
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he present business model is management of loyalty program for which the parties consciously negotiated and agreed on a consideration which is referred here to as the Management Fee. The said Management Fee charged by the Appellant is not influenced in any manner by possible point expiry, Accordingly, commercially agreed amount reflects the true and correct consideration payable by to one party to another for rendition of an agreed service.
Moreover, the retention of Point expiry Income is only a matter of chance and is totally contingent upon redemption of Payback Points by the End Customer and is not related in any manner to rendition of any service. Therefore, the Appellant since its inception is not providing any service in relation to such point expiry and therefore no GST liability can be fastened upon the Appellant in this regard. Actually for such point expiry, no services has actually happened.
In light of the aforementioned factual scenario, the Appellant filed an applicati
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treated as 'supply' of any other 'goods' or 'services' and consequently be chargeable to GST under the CGST, HGST or IGST Act?
1. In this regard, a brief summary of the statement containing Appellant's interpretation of GST provisions vis-å-vis the aforementioned factual scenario, as made in the Appellant's application for advance ruling is as follows:
i. While “actionable claims” have been expressly included under the definition of “goods”, only actionable claims in the nature of lottery, betting and gambling are covered under the scope of levy of GST In terms of Section 7 read with Entry 6 to Schedule III of the CGST Act and the HGST Act or IGST Act
ii. Therefore, any goods which are in the nature of 'actionable claims' would not be chargeable to GST unless such 'actionable claims' are in the nature of lottery, betting and gambling.
iii. In this regard, it was submitted that Section 2(1) of the CGST Act, defines the term 'actionable claim' as follows:
“(I) actionable cla
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A.
vi. It was further submitted that since the Payback Points are not in the nature of lottery, betting or gambling, the supply of Payback Points cannot be treated as a supply of 'goods' or 'services' as per Schedule III of the CGST Act and the HGST Act. Accordingly, it was submitted that supply of such Payback Points is outside the scope and levy of GST under the CGST Act, HGST Act or the IGST Act.
vii. Accordingly, any amount retained by the Appellant on account of lapsed Payback Points is nothing but a consideration for Payback Points, which, as discussed above, are in the nature of actionable claims and are therefore outside the scope or levy of GST.
viii. It was further submitted that since any consideration received from issuance of an actionable claim is outside the purview of GST, the Appellant is of the view that any amount retained by the Appellant in relation to expired Payback Points would not be chargeable to GST.
2. That the personal hearing with respect to the aforem
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y period, the Payback Points no longer remain to be in the nature of 'actionable claims'.
iii. Therefore, post the expiry of the said Payback Points, they are not covered within the specific exclusion provided under Schedule Ill of the CGST Act and the HGST Act.
iv. Accordingly, the amount retained by the Appellant post the expiry of the Payback Points is nothing but revenue of the Appellant coming from the respective Partners which has been earned by them, owing to the activities of their providing services to the said Partners in the form of management of Loyalty Program.
v. It was further stated that the agreement, entered into by the Appellant with its Partners for the provision of the services of Loyalty Program management, is also evident of the fact that revenue is retained by the Appellant post expiry of Payback Points.
vi. The amount retained by the Appellant due to expiry of Payback Points is therefore liable to be considered as consideration for supply of services by the
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whether the nature of Payback Points (which are considered as actionable claim during their validity period in the impugned order of the Authority of Advance Ruling) changes post expiration of their validity period? and The amount retained by the Appellant on account of such expiration is therefore liable to be added to the value of taxable supplies made by the Appellant?
(2) How can Payback points which are considered as “goods” during their validity period becomes supply of “service” post their expiration?
7. Being aggrieved by the finding of the Impugned Order the Appellant has preferred this appeal on the grounds mentioned hereunder which are without prejudice to one another.
The Appellant craves leave, to add to, amend, modify, rescind, supplement or alter any of the grounds mentioned hereunder and/or produce such records, documents, calculations as deemed *necessary either before or at the time of hearing of this appeal.
Questions being agitated by the Appellant in present A
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of the Central GST and Haryana GST Acts of 2017 reads as under:
“100. (1) The concerned officer, the jurisdictional officer or an applicant aggrieved by any advance ruling pronounced under sub-section (4) of section 98, may appeal to the Appellate Authority.
(2) Every appeal under this section shall be filed within a period of thirty days from the date on which the ruling sought to be appealed against is communicated to the concerned officer, the jurisdictional officer and the applicant: Provided that the Appellate Authority may, if it is satisfied that the appellant was prevented by a sufficient cause from presenting the appeal within the said period of thirty days, allow it to be presented within a further period not exceeding thirty days.
(3) Every appeal under this section shall be in such form, accompanied by such fee and verified in such manner as may be prescribed.”
In terms of Section 100(2) the appeal was required to be submitted within 30 days from the date of communicat
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vant notification notifying the Appellate Authority was dated 18.10.2017 and not a recent one as argued by the Appellant. That, in the absence of an evidence of application's timely receipt, the argument of timely dispatch held no good. That, the appeal has clearly become time-barred and right had already accrued to the authority to decide on the Appeal.
However, the AAAR observed that given this to be a very initial phase of Advance Rulings or Appeals therein, a liberal view can be taken notwithstanding the non-adherence to time-schedule by the Appellant. Also, the Appeal being within the condonable period of further 30 days in terms of Proviso to Section 100(2) of the Acts ibid, the request for condonation of delay is being acceded to.
b. Submission of the Applicant:
During the hearing the appellant while reiterating the submissions made in their written reply put forth that the basic emphasis of their submissions was that an Actionable claim remains an actionable claim.
They sub
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nerated.
v. That, they are the generators and issuers of the Payback Points;
vi. They are selling the payback points which are actionable claims therefore their revenue in the instant case has resulted from the sale of payback points/ Actionable Claims.
vii. That, they charge 'Management fee' from the Partners and the amount incurring on account of unredeemed points has no bearing on the consideration for the services provided to the Partners because in several cases 100% of the generated points get redeemed and no income occurs on account of unredeemed payback points.
12. Discussions:
We have gone through the facts in case, the submissions of the Appellant and the record of personal hearing.
The observations to the above mentioned point are enumerated below point-wise. Discussion in details has been taken up thereafter.
i. There are 3 types of supplies, 'Goods', 'Services' and 'Actionable Claims';
The submission of the appellant is misplaced.
All kinds of actionable claims
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(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;
Thus, under the GST law, there are only 3 types of supplies – Goods or Services or both. Supplies of all actionable claims are the supplies of Goods for the purpose of GST law.
Also, as discussed infra, the amounts accounted for as revenue from the unredeemed Payback-points by the appellant, do not qualify to be actionable claims. The discussion on this aspect has been taken up infra.
ii. There are no Invoices issuable for the 'Actionable Claims';
As mentioned, the unredeemed Payback-points by the appellant do not qualify to be actionable claims. Admittedly, the appellants receive payment against the total generated points, upfront in terms of the contract executed with the 'partners' and record the same as revenue in their
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eme, the appellants are surely generators of the program but the points can never be generated unless there is a transaction between the end-customers and the 'Partners'.
It is observed that necessary financial back-up for the generation and redemption of the points is provisioned by the 'Partners'; the generation forms a component of the overall functioning of the scheme by the appellant.
v. That, the end-customers can directly sue them for non-redemption or deficiency of service; they have the option to sue them directly or the partner from the purchases with whom the points were generated.
It is observed that as the name suggests and as it turns out from the tenets of the loyalty scheme as such, the loyalty program is aimed at generating, maintaining and retaining the end-customer's loyalty towards the Partners, for the requisite supplies.
The end-customers undertaking the transaction identifies the Partner as the provider of the payback points and for the remedy for any deficie
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appellants are not selling any payback points but are providing a facility by way of a software programme to the Partners to help Partners generate and retain loyalty of the customers undertaking any transactions with them.
Even if it is deemed for the arguments sake that the appellants are selling the Payback points, the consideration flows to them for the same from Partners only. However it is not the appellant's case that there is a separate agreement with the partners for the same. Admittedly the transaction linked generation of payback points is a part of the service package for the overall management of the scheme by the appellants.
It is further observed that the making available of the payback points to the end-customers is also not the selling of these points to the end-customers as the consideration for the same is coming from the Partners only. In fact there is no service either to the end customers, by the appellants on the same corollary that the consideration for the p
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t the time of the personal hearing.
From the submissions made by the appellant in writing as a part of the written Appeal and those made at the time of the hearing it is very clear that the loyalty programme is a programme devised with the aim of generating and maintaining customer loyalty towards the partners entering into agreement with the appellants for the running and managing the overall scheme.
It is not the appellant's case that consideration for maintaining and facilitating encashment of payback points is flowing from the end customers. In fact it is admitted position that the amount received upfront from the Partners in respect of the generated payback points is booked as revenue in their account.
Obviously, the consideration for total payback points including those becoming unredeemed ones after validity period, has flowed from the Partners.
We observe that this consideration has two components – fixed and variable. The fixed component is what has been received by the ap
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