Dismissed

"Loyalty Solutions and Research Private Limited, Gurugram"

GST AAAR23 Oct 2018HAAAR/2018-19/01

Case brief

AI extract

What is this about?

Appeal by a loyalty programme operator against an advance ruling holding that amounts retained on expiry of unredeemed reward points were taxable as supply of services. The Appellate Authority for Advance Ruling dismissed the appeal, upholding that the retained amounts, being consideration received from partners for services, were liable to GST. It also condoned the delay in filing the appeal.

What the court decided

AI extract

"Loyalty Solutions and Research Private Limited, Gurugram" — GST and Indirect Tax | GST AAAR (2018)

¶1

BRIEF FACTS OF THE CASE:

¶2

The Present appeal has been preferred by the applicant M/s Loyalty Soiutions and Research Rrt. Ltd. (LSRPLI) against the Advance Ruling No. HAR/HAAR/RI2o77-LBl4 Dated 77.04.2018 passed in their application dated 12.01.2OI8.

¶3

The applicant namely M/s Loyalty Solutions and Research Pvt. Ltd. (LSRPLI), owns and operates a reward point based loyalty programme that is integrated towards it partners and their customers. under this progralnme, LSRPL is providing certain services to its clients/partners such as M/s Nice Chemicals Rrt. Ltd. (NICE). The applicant is managing the customer loyalty prograrnme for its clients/partners such as NiCE, which is based on issuance of reward points also known as payback points by the applicant to end customers. These reward payment points have value of 0.25 INR each.

¶4

The party has submitted a copy of the Agreement with M/s Nice Chemicals Rrt. Ltd. (NICE), as a representative agreement in support of its argument. Since this Agreement is with specific partner client, namely, NICE, this Agreement may be considered as the prototype of all Agreements made with various clients/ partners and a1l discussions regarding the Agreement are to be taken as relevant to and applicable for all the Agreements entered into by the applicant with various clients/ partners under reward point based loyalty programme.

¶5

For managing this loyalty progralnme, LSRPL is getting Management fee and/or seryice charges fee. The LSRPL are paying GST on the management fee as well seryice charges charged by them from NICE. The pattern of this loyalty programme is as follows.

¶6

a) On purchase of products of "partners" to this loyaity programme, end-customers get reward/payment points.

¶7

b) These rewards points can be redeemed by customers, while making future purchases of products of "partners".

¶8

c) In pursuance to these reward points management, "partner" transfers amount equivalent to 0.25 of INR, per reward point, as issuance charges to LSRPL

¶9

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.

¶10

e) The rewards points have a validity period of 36 months, meaning thereby that ttre customer cannot redeem these reward points, after expiry of 36 months from the date of issuance.

¶11

f) It may happen that the customer does not or is not able to redeem the rewards points, within their validity period of 36 months from the date of issue.

¶12

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g) in such cases, as per the agreement, the rewards points a_re forfeited and amount equival"nt to 0.25 INR per reward point is being retained by LSRpL

¶15

I The question for advance ruling was that whether this amount of issuance fee retained/forfeited by LSRpL, would amount to consideration for actionable claims and subje"i to cst. The texts of the questions raised by the applicant is as under:

¶16

a) whether the value of points forfeited of the applicant on which money had been paid by the issuer of points or, "ttornt of failure of the end customers to red.eem the payback points within their validity period would amount to consideration for 'actionable claim, other than lottery,,gambling or betting and therefore would not quaiiff as supply of either goods o. ".riri."s in terms of section 7 read with schedule IiI of the centrar Goods and services Act, 2oLT, Haryana Goods and services Act, 2orz or Integrated Goods and services Tax Act, 2or7 and therefore would be outside the scope and levy of GST.

¶17

b) whether the value of points forfeited of the appricant on which money has been paid by the issuer of points or ".forrrrt of i*ru..-or the end customers to redeem the payba"r. poirri" ;ilth., validity period can be treated,"" "".rpiry of iry other goods or services and consequenfly be charge"url to GST under the CGST, HGST or IGST Act?

¶18

6: - _The Deput5r Excise & Taxation-commissioner (sr), Gurgaon (East), vide letter No.3o86 dt.22.o3.1g, submitted the requisite comments vv*'*vrrLo on both the above questions raised by the "ppri.".rt, ;";;;;,

¶19

(a) The applicant recovers the underlying value of o.2s INR per reward point to the customers of the partners enrolled under ihe ioyarty programme and on issuance of such points the applicant charges issuance fees. However, tJre applicani ,rot "." submits that the amount received by the applicant in return of issuing points are returned back to the partners when such points "r. ,roirred within validity period. Therefore, it is not an actionable claim as the applicant fails to meet all the characteristics as stated by the applicant. The actionable claim as defined in section 3 of Transfer of Property Act, 1882 comprises two types of claims: 1"1 a J"i- to unsecured details and (b) claim to beneficial interest in movable property. If the beneficial interest in movable property is not in possession of the claimant it will be actionable claim but if it is in his possession or enjo5rment, it will not r. ".tionrti"-.r.i.r.t,L . * good$in possession. In the present case the pay back points are very much in the possession of tree customers. Tireiefor., ih"y ""rrrrot ue termed as actionable claim. Hence, would attract GST.

¶20

{b)^{Yes, it would} attract GST under the CGST, HGST or IGST Act as

¶21

Y\N.

¶22

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¶23

applicant received issuance fees from the partners on issuance of payback points @.O.25 iNR per payback point. Since these payback points are issued in exchange of some consideration and acts as an disc-ount for the customers, who uses these pa5r-back points and the applicant transfers the consideration attachld"with payback points to the vendors. Therefore, the above stated transaction wiil attract GST.

¶24

Advance Ruling under section 98 of the cGST/ HGST act 2017 was pronounced as under:

¶25

I. The value of points forfeited of the applicant on which money had been paid by the issue of points on-"""ount of failure of thl ena customers -to redeem the payback points within their validity period would amount to consideration received in lieu of seryices being provided by LSRpL to its clients and thus would be outside tJre scope of being considered as 'actionable claim, other than lottery, gambling or betting and therefore wourd qualify as supply of services in terms of Section 7 of. the Central Coods and Services Act, 2o17 / Haryana Goods and services Act, 2or7 "rra tr..r.ior. would be within tJre scope of levy of GST

¶26

Ii. The value of points forfeited of the appiicant on which money has been paid by the issue of points on-"""orrrrt of failure of the end customers to redeem the payback points within their validity period is to be_treated as "supply" of Jervices and consequently be chargeable to GST under the CGST, HGST or IGST Act, ai the lase mav be.

¶27

The Appellant made the following written submissions in the Appeal:

¶28

"I oyalty Solutions and Research private Limited (the ..Appellant,, or .,LSRPL,,) owns and operates a reward points based multi-coalition loyalty program (,,Loyalty Program") for various corporates (the "Partners") and their customers (..End Consumers") in India.:. The basic features of the said Loyalty program operated by the Appellant are as follows:

¶29

(1) Every End Customer enrolled under the Loyalty Program is issued reward points known as 'Payback Points' having standard value of 0.25 INR per reward point for making purchases from Partner stores. The "payback Points" are issued by the partner.

¶30

(2) The Payback Points so issued can be redeemed by the End Customers with any qf the 'Redemption Partners' for buying goods or services within the 'Payback Coalition Network'. Accordingly, iuitt Payback points are in the nature of 'debt' or 'actionable claims' which u." io be honoured by the Appellant as and when presented for redemption.

¶31

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(3) since the points are 'debt' or ,actionable craims, which are to be honoured by the Appellant,.the underlying value of the payba.t poinr, so issued to / or redeemed by the End custo'ers is recov.r"d by the appelrant from its partners either at the time of their issuance o, u, ,tr. time of their redemption depending on the business moder opt"J uy1n. paftners.

¶34

(4) The Payback^points so issued, normaily have avaridify period of 36 months during which the said points can be ieoeemeo ;t ,# End customers for any of the reward options available to them.

¶35

(5) It is pertinent to note that the Appellant provides its partners as well as the End customers with a platform for allotting.ucn ruyuu"k points as well as ro track redemption of payback points by"End curior..r. The Appeilant also manages the reward options as weil as rerationships with the Redemption^partners for smooth redemption or ru"t Ruyback points. For such add on.services, the Appe'ant cirarges u .unug"ent fbe against which Appeilant issued invoici with GSfat tt" uppiopriare rates to its paftner and discharged GST liabirify acc-ordingry in t"r, of the provisions Of thE CGST ACT, IGST ACT ANd HGSi ACT ANd thc rUICS MAdC thereunder

¶36

The Appellant undertakes the aforementioned business of Loyalfy program through the following business models:

¶37

A. Redemption Model:

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i. The Partner alrocates payback points to various End customers depending upon the quantum of purchase and the same are ,;i";d.d in the Appeilant,s systems where they are shown as available t;-rd cusromers to be redeemed / bumt.

¶39

iir A1 and when the customers bum / redeem the payback points availabre with them, the^partners become liable to .o*p.nr# the appeilant for the underlying value of the Payback Points r"o""r"i-uf 1; rno Customers at their face value.

¶40

iii. In such cases, in order to secure payment towards such payback points (as and when they are redeemed) the Appeilant g.n..uirv ,".k, s".u.ities such as Bank corporate.Guarantees to guarantee the payment of the value of the Payback^points which are redeemed by the gnd burto,n;r,

¶41

iv' For providing the said services of loyarty program management, the Appellant realizes fixed fees, variable servicefels id enrollment fees from its Partners ("Management Fees") and discharge GST riuuiliry on the same. Issuance Model:

¶42

¶43

The issuance model is identical to the aforesaid model except the fact that the payment of INR 0.25 per payback point is n,ua" ifnont to the Appellant by the partner without waiiing for actual redemption.

¶44

ll. The amount received by appeilant upfront for the payback points is recorded as revenue in the Appelrant's books of accounts due to various ?:99u11]1g^{principlesand in rerms of the provisions} of the Income-tax Acr, l96l ("lTAct").

¶45

1il. The amount so recovered is Jhereafter passed on to various Redemption Partners as and when the payback pfints are redeemed by the End customers. Relevant debit entry in this regard is made in the ippelrant,s

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iv' in cases where such payback points are not redeemed by the End consumers within their validify period, the amount colrected by the Appellant from^partners towaids these points, being an unclaimed actionable claim ldebt, becomes the income of the Appellant and retained by the Appeilant. Therefore, on the day of expiry of payback points no new fee or income is generated by the Appellant uni onty the revenue received by the Appellant towards the Payba&-Points, being actionable claim / d,ebt, becomes income of the Appe'ant and is retained ui tn" Appelrant.

¶50

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 arwavs up to the Partner as far as serection of business model is concerned.

¶51

It is further pertinent to note that some of the Appellant,s biggest partners have opted for the redemption model which can be infenid from the fact thatduring the F'YF.Y. 2014-1s, F.y. 2015-16 and F.y. 2016-17 60 %o, 5ro/o , 4gyoof the revenue ( excluding other income) earned_by the Appelrant respectively,'was fiom redemption model partners as compared to 316/o, B%,47%respeitivery, Lu*"0 by the Appelrant from the issuance model.

¶52

In this regard, some of the commercial considerations due to which the partners opt for issuance model, are as follows:

¶53

i' Partners are reluctant to provide appropriate bank guarantees to the Appellant to guarantee the value orpuyla"k pointr *rti"il ur" ."0""..0 uy the End customer.

¶54

ii' Partners are more comfortable to discharge the amount upfront i.e. at the time of the issuance of payback pointi rather than oisctrarging on a continuous basis as the points are redeemeo on aaiiy basis aid^"require considerable man-hours to constantry track and puy rorih" ,u*".

¶55

iii' Partners do not have adequate accounting and technical infrastructure required for recording the data in relation1oihe issuance and redemption of Payback^poinrs.

¶56

Therefore, at the time of signing the contract under any of the afore-mentioned business models, i.e. issuance model or redemption model, the commercial considerations. for providing the management services is not influenced by the possible retention of point gxpirv income by the Appellanq *rri"t may or uy noi partners under happen at a future date underthe issuance model. ii.." u." ""nuin the issuance model where End customers have a r00%'reJem;;i;;;unf,il;;;; no point expiry income. It is therefore clear that the only r"rui"!, provided under the present business mod.el is management of.loyalty program for wtrictr the parties consciously negotiated and agreed on a consideratibnwh]ch is referred here to as the Management Fee. The said- Management Fee charg; ;, itre appettant is not influenced in any manner by possibre point expiryl Accordingly,'"o,n"..iuity agreed amount reflects the true and correit consideraiion payable by to on" pu.ty tL another for rendition ofan agreed service.

¶57

Moreover, the retention of point expiry Income is only a matter of chance and is totally contingent upon redemption of Fayback Points 6y the End Customer and is not related in any manner to rendition of any service. Therefore, the Appellant since its iriception is not providing any service in relation to such point expiry and

¶58

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therefore no GST riabirity can be fastened upon_ the Appeilant in this regard. Actually for such point expiry, no services has actually hupp;;;.

¶61

In light of the aforementioned factual scenario, the Appellant filed an application for advance ruling with the Haryana Authority for edvance Ruling (,,HAAR,,) on 12 January 2018 to seek an advance ruring on ih. fotowing questions:

¶62

a) whether the varue of points forfeited, on which money has been paid !v^{t1e issuer of points on accountof failure of the} End customers to redeem the Payback Points within their validity period would amount to consideration for 'actionable craim' other than tottery, gambring or netting a;o therefore wourd not qualify as'supply'-of either,goods-, or,services'in tJrms of Section 7 read with schedule Irr of the centrar- Goods and services Tax Act 2017 (,,ccsr Act"), Haryana Goods and services Tax Act 2017 ("HGST A"t,,; or rntegrated Goods of services Act ("rGST Acto,) and thereforet woutJ be outside the scope and levy of GST?

¶63

b) whether the varue of points forfeited of the Appeltant on which the Toney^{has been paid by the issuer of points on} """ouot of ruitu." of the End customers to redeem the payback points within their varidity period can be treated as 'supply' of any other ,goods' or ,seJ;;' ;; consequen'y be chargeable to GST under the CGST,-HGST or IGST Act? l ' In this regard, a brief summary of the statement containing Appellant's interpretation of GST provisions vis-d-vis the aforementioned factual scenario, as made in the Appeilant's apprication for uouun.. ;;;; is as foilows: i. while "actionable claims" have been expressly included under the definition of "eoods", only actionable claims in the nature of lott"ry, betting and gambling are covered yn!_gr tle scope of revy of csri" ir-s of Section 7 read with Entry 6 to Schedule III of the cbsr Actind ,rr" ntsi a* or IGST Act ii' Therefore, any goods which are in the nature of .actionabre claims, wourd not be chargeable to GST unless such ,actionable claims, are in the nature of lottery, betting and gambling.

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iii. In this regard, it was submitted that Section 2(1) of the CGST Act, defines the term 'actionable claim' as follows:

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3 of "(1) actionable claim the Transfer of property shalr have Act, I Bg2 (4 the same of I meaningas assignedto gg2) ,, o it insection

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iv.. Further, Section 3 of the Transfer of property Act, 1gg2 (.TpA,) defines 'actionable claims, as under:

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f:eans^{a ctaim to.o"! debr,other thana debt secured by} )ijjl!:]",,: mortgage of immovable progerty or by hypothecatio" or' pi"ig" ;f;;;;;t properry, or either-actual or constructive. of the claimant, whlch th" ,r"rt ,""rts recognize as affordtng grounds for retief w,hether such debt or beneficiit jnirrrr, be existent. accruing, conditional or contingent.,'

¶68

v' In light of the above and various other judicial precedentstit was submitted that Payback Points, which qeate a beneficiar interesi in a movabre properfy that is not in possession of the End customers when such payback points are issued/accrued' squarely fall within the meaning and definition of .actionable claims' as provided under TpA.

¶69

fl.

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vi' It was further submitted that since.the Payback points are nof in the nature of lottery, betting.or gambring, the suppry of payback p;;;" cannor be rreared as a suppry of 'goods' or 'serv[es, as per schedure ltt oiirre SGST Act and the HGST Act. Accordingry, it was submiued.thatiffi Irrr.r-' payback points is outside the scope and levy of GST unoer tne cGSfil HGST Act or the IGST

¶71

vii' Accordingry, any amount retained.by the Apperant on account of lapsed pavback points is noihing uut a consilera1r9n dr1;;k poinrs, which, as the discussed scope or levy above, are of GST.in thJ nature oi actionabl" "rui.nrini are therefore outside

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viii. rt was further submitted that .since any consideration received from issuance of an actionabre craim i, ouirio" the purview "Icir, the Apperant is of the view that any amount retained by q" appeilant in Jution to expired payback Points would not be chargeabli t" C'Sr.

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2' That the .personal hearing_ with respect to the aforementioned

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application for advance ruring u, h"tJ on 1l April 2bls a;l was anended bythe Appellant's regar represena-tives. During ,the course of- personar hearing, the Ai:il:fl : fi fllf:"0'entat i ves r"i te'at"i il' " ; ;;;;"". #"0 " i n the app r icarion r. a: In pursuance to the ufo.:y..lrio:ed proceedings the HAAR passed

¶75

the Advance Ruring bearing no. Hanrgaanivzoillta"'ix"d 1r April 2018 communicated to a-ppettant"on )lii;;;;:,201g (the ,,rmpugned order,). In this regard, a brief summary of the findings of the Impugned ordei are as foilows: i. During rheir vatidity perioct, elvbacf point, ;;r;, ," ;;;;;;;;.;"r.^, the natuie or;u.tonulh .rui;;;;-;.;nl;uno., the provisions

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3;'#HX]n

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ii' However' after the :yiry of the saif pavbac.k p-oints, rhey can no ronger be redeemed / encashed by the End customer, who loses-ail its rights over them. Therefore, on the expiry of their vafioityferi"i;,hJ#ack -"- ^ -r "' points no ronger remain to be in the nature of ,actionable ciaimsl.

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iii' Therefore, post.the expiry of the said payback points, they are not covered within the specific ex"luiion provided under Sched"r" iriifl,";b;;:"; and rhe HGST Act.

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IV' Accordingly, the. amount retained by the Appeflant post the expiry of the Payback^points is n9lhing but revenue :f rh," app"irunt coming from the respective^partners which has been eamed by th"",,;;;; to the activities of their Loyalty providing^program. services to the said parrne^ in fu i"#"i;;.G#;; ;i

¶80

v. It was further stated that the-agreement, entered into by the Appeilant with its Partners for the provision of ti'e services of Loyarty program management, is also evident of the fact tttut r.u"nre is retained by the Appeilant post expiry of Payback^poinls.

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vi' The amounr retained by Jl. Apperant due to expiry of payback points is therefore liabre ro be considered^as considerarion f;;poit;i;il;il; Appellant to its partners in the normar course or uusiriess. such amount is liable to be added to the varue of services ueing provil"Jiy ,rr" Appeilant to its Partners in terms of the provisions of the CGIi A.;.^{- -}

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4' Therefore, even though the Impugned order rightry herd that Payback Points are in the nature of acionable cluirni it was wronefullv helO that th. n"fu." of .u.h puvbu.k loints .t "og.s p_ost ih. "JJi#tion ot ir. nu,,o,* neriod whereby the amount r"tain"d byihEAppelr"nr;;;;of such expiration, are liable to be added to the varue of iaxabre-suppries in t.rrnr-orsection l5 of the CGST Act and the HGST Act.

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6' The moot question that is being agitated by the Appeuant vide the present appeal is

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(1) whether the nature of Payback Points (which are considered as actionable claim {uring.their^{varidity period in rhe i.npujn.o} or;;;;;';;;.ii,,ority of Advance Ruling) changes post expiration of theiivuiloity period? ."J rrr. 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 ippellant?

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(2) How can Payback points which are considered as *soods,, during their ---) validity

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period becomes suppry of "service" post their expiratio?---)

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Appellant has prefened this appeal on the groundi mentioned hereunder which are without prejudice to one anothei.

¶89

The Appellant cravesl.ly", ,? add to,-amend, modif,, rescind, supplement or alter any of the grounds mentioned hereunder and/or p.odu". J.['.;;'o;d.,;;;;r, calculations as deemed necessary either befor" ;;i;h" Ji,,,"'"r hearing of this appeal.

¶90

9' The appellants raised the following questions for determination by the Appellate Authority for the Advanc. iutirrg.^-----

¶91

whether the nature_ of payback points (which are considered as actionable ciaim during their varidity period ; A. impugned order of Authority of Advancl nyiing .changes post expirations -of-their ,.uriarq, period? And the amount retained 6y, tfr" Ap;..:ifrr;;;;;1, made expiration by the is Appellant? therefore riabre to be .adea to^'the lr.t r""or ffi;i.'#oirr.""i1r"r,r r-

¶92

How ca' Payback points which are considered. as ,.goods,, during ttreir validity period becomes supply of ,,service"t;;l expiration?

¶93

¶94

The Appeal to the Appellate Authority for Advance Ruring (in Form csr ARA 02) was received in the office or ur" Appeilate ;;4";;"" 30.07-2018. The date of communication of the oi.r"rr". Ruring to the Applicant Appellant was 2Th June 2org as mentioned in the form ibid for Appeal.

¶95

20rr;|;ff:lll#o^{,r, of the central GSr and Haqrana GSr Acts} of

¶96

"100' (1) r|l loncgmed officer, the jurisdictional officer or an ohhri^^6+ ^. iJ,ilto}i:ffi::fii1:,i#"o"''""aunder""r-"'i"'i?l:iff3f Tra;,?ffi:'i 12)^Every ap-peal under this section shall be filed within a period of thirty days -ii" from the date on "'rti"rt-ti" "t"ri"s "o.r!it'a" !" appeared against is communicated to the concerr_._a ,gmi"1, l"rr.ictional officer and the appricant provided that the Appefl1je.elflr.rr'"tv may, if it is satisfied that the appellant was pr"rr"rrt"Jty a sufficient cause f ;:nT:::::::i'",ilifi"?Hi"1";ilffi^{''iilL'il1.'ff"TT"1""'ii"'11ff}

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(3) Every appeal under this section shall be in such for:

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and verified in such manner "" *.v be prescribed.,^{m' accomparied} by such fee In terms of section 100(2) the appeal was required to be submitted within 30 days from the date'oi communication of lhe Advance Ruling viz. ffi:-"rffi''.otu^{but havins *;il;;;;"""to.oz.2o1',the} same is

¶99

Record of personal Hearing.

¶100

The personal hearing was {ixed for g.ro.2or'. Advocates s/shri sandeep chilana and Atulya Kshore and s/shri Rupanter Aggarwal, Tax Head and pramod Mahanta, chief Financiar officer of the Apperlant firm hearing M/s. Loyaltv solutions on the fixed date and and time.Research "*. il. ILSRPLI) attended the

¶101

a. On the issue of time_bar:

¶102

The Apperlant Authority for Advance Ruring (AAAR) noted that the i"r1r""," Appeal is time-barred whereas the Appenant "J JJ;o;; for condoning the delay and no ,.^"o' i"r,rr. a.Lu;;"-;;;;;.

¶103

The appeilant submitted that the delay occurred as the Authority was only recentry notified and it took t,.em ti*. to t ace out the office of the Authoritv' They further submitted that the eppri""ii.;"; """, o, speed Post and they had no reason to berieve that ii wourd reach iate.

¶104

The AAAR pointed out that rerevant notification notifying the Appellate Authority was dated 1g.10.2017 ,ndnot a bv the Apperlant. rhat, in the "b";'J;;#::"fffi;#ff,1 timely receipt, the argument of timery dispatch held no *"iTnJ,,'. the appeal authority has clearly to decide become on the Appeal.time-barred and right rr"a "rr".dy accrued to

¶105

However, t,.e AAAR observed that given this to be a very initial phase of Advance Rurings or Appeals therein, a riberar view can be taken notwithstanding the non-adherence to time-schedule by the Apperlant. Also' the Appeal being within the condonable period of further 30 days in

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terms of^proviso to section 100(2) of the Acts ibid, the request for condonation of delay is being acceded to.

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b. Submission of the Applicant:

¶109

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.

¶110

They submitted that tlrey are the holders of ttre IpR for the scheme of loyalty program and admitted that they are ur. *.rr"ger of the entire functioning of the scheme at dre ends of the partners and pnd_customers.

¶111

in this regard the appetant brought forth the following points:

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i. There are 3 t5rpes of supplie s, - ,Good.s,, ,sen)ices, and ,Actionabre Claims';

¶113

if' There are no Invoices issuabre for the ,Actionabre craims,;

¶114

iid' That it was crear from their written submissions in the Appear that ttre entire scheme of ioyalty program is theirs; they are the issuers and managers of the loyalty programme; the progr"ri""ri" ," open to end=customers and tl.ey can independenfly enrol for the program under which there are numerous partners and the Pagbackpoin/scanberedeemedunderseveraip".t,.",".

¶115

!a^Thlt,_the end-customers can directry sue them for non_redemption or deficiency of service; they have the option to*sue them direcfly or the partner from the purchases with rr..',rrl';il:';r. generated

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v. That, they are the generators and issuers of the pagback points;

¶117

ul. They are sefling the payback points which are actionable claims therefore their revenue in trre instant case has resurted from the sale of payback points/ Actionable Claims.

¶118

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 pa"rtners because in several cases roo% of the generated points get redeemed and no income occurs on account of unredeemed payback points.

¶119

Discussions:

¶120

We have gone tJrrough the facts in case, the submissions of the Appellant and the record of personal hearing.

\A^

The observations to the abo b elow p oin t- wi s e. D i s cu s sion in d.,J: il:T::X' Lf.:T, ?.,;n;m e ra ted

¶125

z. There are g types of suPplies, - ,Good.sr, ,services, and 'Actionable Clqim.s,:

¶126

The submission of the appellant is misplaced.

¶127

ttfttr of actionabre claims have been recognised as Goods i' the

¶128

:?:::il: definitions are being reproduced for the sake of ready section 2(1) of the central and Haryana Gsr Acts define Actionable Claims to have the same mr rransrerorpropert5rA"tl;#llxff il,-"xtii j,""'j:;"t"::,H: fi:I:;,t" Section 3 of the Transfer of property Act 1BB2 is given

¶129

"Actionabre claim" means a craim to any debt, other than a debt secured by mortgage of immoveable properfy or by hypothecation or pledge of moveable propefty, or to any beneficiar interest in moveabre property not in the possession, either actual or constructive, of the claimant, which il,i iiuir courts recog'ize as affording grounds for relief, whether such debt or beneficiar interest be existent, accruing, conditional or contingent:

¶130

As mentioned, all kinds of actionabre craims have been recognised as Goods in the GST Law. section 2(52) of the centrar and Haryana GST Acts define^,Goods,as under:

¶131

(52) "goods" means every kind of movable property other than money and securities but incrudes actionabre craim; growing "rio., ru and things attached ::"ii,Iffi:ri};iJl; rand which are agreed ro be severed berore suppry or

¶132

Thus' under the GST law, there are only 3 types of supplies - Goods or services or both. supplies of alr actionabre claims are the supplies of Goods for the prrpo"" of GST iaw.

¶133

Also' as discussed infra, the amounts accounted for as revenue from the unredeemed pagback-points by the appeilant, do not qualify to be actionabre claims. The discussion on this aspect has been taken up infra.

¶134

ii' There are no rnvoices issuable for the iActionabre craims,;

¶135

As mentioned, the unredeem ed, pagback-pointsby the apperlant do

¶136

11 $-

¶137

$1"

¶138

not qualify to be actionable claims. Admittedly, the appelrants receive payment against the total generated points, upfront in terms of the contract executed with the ,partners, "rd^{.""ord the sanre as} revenue in their accounts. obviously the payment received from the 'Partners'and accounted for as,,Revenu", for*" the consideration against the contracted services for the appellant.

¶139

lli. That it was crear from their writteri submissions in the Appear that they entire scheme of loyarty progru* is theirs; they are the issuers and managers of the royalty programme; the programr scheme is open to end-customers and they can independently enrol for the program under which there are numerous partners and the pagback points can be redeemed through several partners.

¶140

It is observed that no services have been provided by the App<.'ants customers.to the end-customers against the unredeemed points by the end_

¶141

In view of this fact, the ownership of the l0yaity program and its management has no bearing on the nature orlrre ._o.*t generated on account of unredeemed payback points.

¶142

iu' That, they are the generators and issuers of the pagback Points;

¶143

It is observed that as a manager and operator of the Loyalty scheme, the appellants are surely generators of the program but the points can never be generated unless there is a transaction be,tween the end-customers and the ,partners,.

¶144

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.

¶145

u' 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.

¶146

It is observed that as the name suggests and as it turns out from the tenets of the 10ya1ty scheme as such, the 10ya1ty program is aimed at generating, maintaining and retaining the end-customer,s l0yalty towards the partners, for the requisite supplies.

¶147

The end-customers undertaking the transaction identifies the

¶148

¶149

Partner as the provider of the payback points and for the remedy f6r any deficiency in servicing of the promised payback points wilr naturally tend to turn up bl sue the partners. As such the handling of opted suing ui trre end-customers oI,the appellant is merery a faciiity undertaken by the appeilant on behalf o1. the Partners and forms a service by the appelLnt against consideration from^partners.

¶150

Moreover the services are rend.ered by the Appellant to the prtrtners and nature of Appellants' relationship with eni-customers is part of their contract/ concept. For taxation matters the reration between Appelrants and end-customers has no bearing on the reratir_rnship between Appeliant and the vender partners. whatever revenue is accruing to them, is from the vende r partners only. End_customers ffi.:ilff:e in the scheme of things as for as supply of services is

¶151

ui' They are seting the payback points which are actionabre craims therefore their fevenue in the instant case has resurted from the sale of payback points/ Actionable Claims.

¶152

It is observed that the apperlants are not serling any payback points but are providing a facility by way of a softwui. prog..mme to the Partners to help pa-rtners generate and retain 10ya1ty of the customers undertaking any transactions with them.

¶153

Even if it is deemed for the arguments sake that the apperlants are selling the payback points, the consideration flows to them for the same from partners onry. However it is not the apperlant,s case that there is a separate agreement with the partners for the same. Admittedly the transaction linked generation of payback poinrs is a part of the for the overall manasement of the scheme br,h:";;;,:;J"*'

¶154

It is further observed that the making ava'able of the payback points to the end-customers is arso not the selling of these points to the end-customers as the consideration for the same is coming from the^partners on1y. In fact there is no service either to the end_ customers, by the appellants on the same corollary that the consideration for the payback points or their maintenance and facilitation of redemption is flowing from the partnersand by virtue ";.#:r""greements^{executed beiween} the appett"rrts and the

¶155

uii' That, they charge 'Management fee' from the partners and the amount incurring on account of unredeemed points has no

¶156

¶157

r"1 t

¶158

bearing on the consideration for the services provided to the pqrtners because in several cases Looo/"of the generated points get redeemed and no income occurs on account of unredeemed payback points.

¶159

It is observed that the since endre consideration for the provided services is flowing from the partners under the same contracr, the consideration flowing comprises of 2 components fixed and variable' The fixed component is called Management Fee and the amount occurring on account of the reftove points is the "..o.,d variabre componen, "r;;::J:lr"." pavback

¶160

Findines

¶161

We have n:f,J;';;J"il."T:ft^{:'1ffi'.iiHSn"f ;:'i,1':T,:,i:"#::':::;} 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 rs very clear that the loyaity programme is a programme devised with the arm of generating and maintaining customer l0yaity towards the parrners entering into agreement with the appetiants for the running and managing the overall scheme.

¶162

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 receivecl upfront from the partners in respect of the generated payback points is booked as revenue in their "..o._,.rr.

¶163

obviousry, the consideration for totar payback points inciuding unredeemed ones after validity ieriod, has flowecl from :l3",'.:,::?Ting we observe that this consideration has two components _ fixed and variable. The fixed component is what has been received by the appelrants by the name of Management Fee and the variable component is the amount booked a points. rs revenue in respect of the unredeemed ieftover pal back

¶164

Appellant's contention that AAR has admitted that payback points are in the nature of actionable ciaim and therefore any consideration is out of the provision of GST is grossly misplaced. In fact Appellanr is in possession of points and revenue at their end. Whenever customers crairn/ redeem the points it is their riability to honour the crarm of customers. However when there can be no craims by the end._customers

¶165

1A $^gV

¶166

after the expiry of validity period, these are no more actionabie crarms. These stand lapsed at the .rra of ttr. customers ur.o ooo"llant keat the ;:Hl"ifi::"u^{"" revenuewhichcan never o"} i"""r,bed as any ciaim

¶167

The consideration for the r"l?.o,:"ed payback points has arready same has become #""'tiill "rl:::;ffi;".;:lir":," ':;i; s c h em e in cru ding th e p o in t s, o, o, Ji" iliil';:,T: ":'^{il':,|::: X"} ^l?iiT appellants. Even if it is admittej that_there is a provisioning of service by ffi"Tff:":L,i.:,11:::,";;,^{there .",;J;} ;;,,n such service or against anyone. agarnst the payback points not redeemed by them

¶168

ORDER

¶169

As discussed supra' we take a renient view and a110w the submissions made Ou.ing hearlng to be treated as a requesr for condoning of the delav, anJ o Le instan, o;;;i*hich has been fired within extendabre period of further 30 days i' t"rin" of section roo(2).

¶170

Having regards to the facts of the case and the discussions supra, we dismiss the Appeal and uphola tfr" Advance Rulins.

¶171

3ffim,, $19_ise^{& baxation,} ftaryana

¶172

"Loyalty Solutions and Research Private Limited, Gurugram"

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"Loyalty Solutions and Research Private Limited, Gurugram"

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