M/s. Loyalty Solutions & Research Pvt. Ltd. (“the applicant”) owns and operates a reward point-based loyalty program that is integrated towards its partners and their customers. The applicant is managing the customer loyalty program for its clients/partner such as M/s. Nice Chemicals Pvt. Ltd (“NICE”) which is based on the issuance of reward points also known as payback points by the appellant to end customers.
Further, the applicant had sought advance ruling on the point that whether the value of points forfeited of the appellant on which money had been paid by the issuer of points on account of failure of the end customers to redeem the payback points within their validity period would amount to consideration for ‘actionable claim’ and subject to GST. The Haryana Authority for Advance Ruling (“AAR”) vide Advance Ruling No. HAR/HAAR/2017-18/4 dated April 11, 2018 (“Impugned Order”) held that, amount retained by applicant due to expiry of Payback points constitutes a consideration for supply of services by appellant to its clients and lapsed points no longer remain ‘actionable claim’, however, unexpired payback points might have fallen within the meaning of ‘actionable claim’. The value of points forfeited and retained amounts to the consideration received in lieu of services provided by the applicant and thus would be outside the scope of being considered as actionable claim and hence to be treated as supply of services for the purpose of levy of GST.
The question being agitated by the applicant in present application on which the advance ruling is sought are as follows:
- Whether the nature of payback points, which are considered as actionable claim during their validity period in the impugned order of AAR changes post expiration of their validity period? And the amount retained by the applicant on account of such expiration is therefore liable to be added to the value of taxable supplies made by the applicant?
- How can Payback points which are considered as “goods” during their validity period become a supply of “service” post-expiration?
Contention of the applicant:
The applicant submitted that they are the holders of the Intellectual property right for the scheme of the loyalty program and admitted that they are the manager of the entire functioning of the scheme at the ends of the clients and end customers. The basic emphasis of their submission was that an Actionable claim remains Actionable claim.
The AAAR Haryana vide its Order No. HAAAR/2018-19/01 dated October 23, 2018, held that the amount retained by the applicant due to the expiry of Payback points constitutes consideration for a supply of services by the applicant to its clients. Further, it was observed that total payback points including those becoming unredeemed ones after validity period, has flowed from the clients. The consideration has two components-fixed and variable. The fixed component is what has been received by the applicant by name of management fee and the variable component is the amount booked as revenue in respect of the unredeemable leftover payback points.
Appellant’s contention that AAR has admitted that payback points are in the nature of the actionable claim and therefore any consideration is out of the scope of GST is grossly misplaced. Whenever customers redeem the points it is their liability to honor the claim of customers. However, when there can be no claims by the end customers after the expiry of the validity period, these are no more actionable claims. These stands lapsed at the end of customers and applicant treat the redeemed money as revenue which can never be described as any claim against anyone.
Therefore the authority uphold the decision that the payback points are in the nature of actionable claim and it was wrongly held that the nature of such payback points changes post the expiration of its validity period whereby the amount retained by the applicant on account of such expiration is liable to be added to the value of taxable supplies in terms of Section 15 of the CGST Act and HGST Act.