Input tax credit blocked on loyalty programme vouchers treated as gifts on free redemption of points

Input tax credit on vouchers and subscription packages procured from third-party vendors and supplied under a loyalty programme was barred because the items were treated as goods and their redemption against accumulated loyalty points involved no monetary consideration from the customer. On that basis, the free issue of vouchers on redemption was characterised as disposal by way of gift, bringing the transaction within the blocked credit rule in section 17(5)(h). The AAR therefore held that input tax credit was not admissible on those supplies.

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Issues: Whether input tax credit was admissible on vouchers and subscription packages procured from third-party vendors and supplied to customers under a loyalty programme against accumulated loyalty points.

Analysis: The relevant entitlement to input tax credit under section 16 is subject to the restrictions in section 17. The vouchers and subscription packages were treated as vouchers within section 2(118) and, applying the statutory definition of goods under section 2(52) and the treatment of transfer of title in goods under Schedule II to section 7, were regarded as goods. The loyalty programme operated without any monetary consideration from the customer on redemption, and the redemption of points resulted in issue of the vouchers free of cost. On that basis, the vouchers were held to be disposed of by way of gift, attracting the restriction in section 17(5)(h).

Conclusion: Input tax credit on the vouchers and subscription packages was not admissible, as the blocked credit provision in section 17(5)(h) applied.

Ratio Decidendi: Where goods are issued to customers free of cost on redemption of non-monetary loyalty points, the disposal is by way of gift and input tax credit is barred under section 17(5)(h).

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