Input tax credit— Section 16, 17(5) of CGST Act— In the instant case, the applicant is a major Indian fashion e-commerce company & owns an e-commerce portal 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. Once 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 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 participation in the proposed loyalty program will be 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. Further the customer will be bound by the said terms and conditions and any changes or modifications to the same by participating in the said program.

The loyalty program is sought to be introduced with an object of increasing customer base of the applicant's platform which will lead to increased footfall and sales through the said platform and thus the said loyalty program will directly impact and enhance the amount of commission earned by the Applicant in the course of their business.

In view of the above, the applicant has sought advance ruling in respect of the following question.

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.

It can be seen from the loyalty program 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 of the applicant by the customer, allows the customer to earn loyalty points. 

The applicant in the said 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.

Held that— The applicant is not 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, as the input tax credit is not available in terms of Section 17(5)(h) of the CGST Act 2017.