In a major setback to Myntra, the Karnataka Authority of Advance Ruling (AAR) has held that Input Tax Credit (ITC) cannot be availed on vouchers and subscription packages procured from third-party vendors.
The applicant, Myntra, is a major Indian fashion e-commerce company and owns an ecommerce 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.
A bench of M.P. Ravi Prasad and T. Kiran Reddy has observed that the applicant, 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 program 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.
Concluding the order, 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),” the AAR said.
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