Case-17- K.P.H. Dream Cricket (P.) Ltd  98 taxmann.com 243 (AAR-PUNJAB)
Query 1: Whether free tickets given as “Complimentary Tickets” falls within the definition of supply under CGST Act, 2017 and thus, whether the applicant is required to pay GST on such free tickets?
Query 2: Whether the applicant is eligible to claim Input Tax Credit (for short “ITC”) in respect of complimentary tickets?
Appellant has been permitted by BCCI to establish and operate the team ‘Kings XI Punjab’. The applicant proposes to provide “Complimentary tickets” on account of courtesy/public relationship/promotion of business where no flow of consideration from the recipient/holder.
The applicant withdrew the application post personal hearing and further submissions citing the fact that as per his views, circular no. 47/21/2018-GST has clarified his query. However, AAR while observing that there is no specific procedure for withdrawal of Advance Ruling and ‘concerned officer’ has been recognised as an equal stakeholder in the advance ruling process held that both applicant and ‘concerned officer’ has reached a conclusion diametrically opposite, therefore, allowing for withdrawal of the present application, without discussing the case on merits would not be in public interest. Hence, the circumstances call for discussion on merits rather than allowing withdrawal.
Query 1: AAR observed that all forms of supply of services made or agreed to be made for a consideration by a person in the course or furtherance of business is included with in the ambit of supply vide Section 7(1)(a) of CGST Act, 2017. Section 2(31) of CGST Act, 2017 defines consideration wherein it covers monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person. AAR observed that when applicant issues a ‘complimentary ticket’ to any person, he is displaying an act of forbearance by tolerating persons who are receiving the services provided by the applicant without paying any money, which other persons not receiving such complimentary tickets would have to pay for.
As regards the monetary value of ticket given free of cost, AAR observed that monetary value of act of forbearance would be pegged to the amount of money charged from other persons not receiving the ‘complimentary tickets’ for availing the same services which would also be in consonance of Rule 32(6) of CGST Rules, 2017 which lay down that “(6) The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token voucher, coupon, or stamp”.
AAR observed that complimentary tickets would be covered by the term ‘token’ and ‘voucher’. Oxford dictionary defines ‘a voucher that can be exchanged for goods or services, typically one given as a gift or forming part of a promotional offer; and voucher is defined as ‘a small printed piece of paper that entitles the holder to a discount or that may be exchanged for goods or services’.
Further, AAR observed that when applicant issues a complimentary ticket to any person, he is certainly agreeing to the obligation of refraining from the act of stopping the complimentary ticket holder from enjoying his services, while he would certainly stop a person not holding any complimentary ticket and who has not paid any money from receiving services provided by the applicant. Therefore, activity of the applicant in issuing complimentary tickets to persons is covered under each limb of para 5(e) of Schedule II of the CGST Act, 2017 and thus would be covered under the scope of supply as per section 7(1)(d).
AAR also observed that on perusal of Schedule I, present case would not fall into any of the four activities mentioned in Schedule I.
Query 2: AAR observed that since the activity of providing the complimentary tickets would amount to supply and thus would be leviable to tax, applicant would be entitled to Input Tax Credit.
AAR held that activity of applicant of providing complimentary tickets free of charge to some persons would be considered as supply of service as per provisions of both section 7(1)(a) and 7(1)(d) and since all tickets supplied by the applicant including complimentary tickets would be taxable, the applicant would be eligible for claim of Input Tax Credit.
- Providing Free Tickets falls under Section 7(1)(a) of CGST Act, 2017:-
The decision of AAR is highly questionable and might need reconsideration, some of the issues have been highlighted as under:
At the outset, applicant by issuing a ticket is supplying service of specified nature. By supplying ticket, he is not agreeing to tolerate the act of another but the applicant is allowing the recipient of the ticket to receive services provided by him. The fact that he does not want to receive consideration itself does not amount to tolerate an act.
Secondly, AAR has failed to analyse the term “consideration” on the basic cornerstone. As Section 2(31)(b) provides that “consideration” in relation to the supply of goods or services or both includes…monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person..”. Therefore, consideration has to be paid in relation to the supply of goods or services either by the recipient or any other person in response to, in respect of or for the inducement of supply.
Surprisingly, AAR itself has clearly observed that the present case does not fall under Schedule I, therefore the transaction is not a supply without consideration. Thus, it’s a supply against consideration.
Applying the conclusion as arrived by AAR, when the applicant sells free tickets, he is displaying an act of forbearance by tolerating persons who have not paid for their tickets. Thus he is the supplier in the given scenario. AAR observed that the amount of consideration is Value of the Ticket considering it as token/voucher (Although do not agree to the same but have been assumed relying upon the decision of AAR and has been deliberated late in the article).
The question now arises who is the recipient. Section 2(93) defines recipient as
“recipient” of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is
liable to pay that consideration;..”
Therefore, as the AAR has held that supply by the supplier is against consideration, therefore to identify the recipient we would have to apply clause 2(93)(a) of CGST Act, 2017 which provides that the person who is liable to pay the consideration would be the recipient. But the moot question is who is going to pay the consideration or in fact who is liable to pay the consideration in the given transaction as contemplated by AAR as an act of forbearing. The person who has received the ticket is not liable to pay the consideration. So does the AAR intended that the applicant himself would be the supplier ad himself would be the person liable to pay the consideration to himself and therefore the transaction would be supply against consideration under section 7(1)(a). It’s not the correct conclusion.
The issue regarding classification of transaction as supply by virtue of Schedule II applying Section 7(1)(d) is not relevant in present times as Section 7 stands amended (from a date yet to be notified) vide CGST Amendment Act 2018 with retrospective effect from July 1, 2017.
The fact is the transaction in hand is a clear case of free supply of tickets which the AAR has taken to a completely different standing. It would be apt that we revisit Model Draft GST Law published in June 2016, Schedule I for “Matters to be treated as Supply without consideration”. The relevant entry of the Draft GST Law contained as follows:
- Supply of goods and / or services by a taxable person to another taxable or nontaxable person in the course or furtherance of business.
The condition provided that any supply of goods and/or services without any consideration by a taxable person to another taxable or non taxable person in the course or furtherance of business would have been treated as Supply. If the law would have remained the same, such supply of free tickets would have been treated as Supply but providing free tickets is not at all an act of forbearance.
- Free Tickets are voucher/token and value of such voucher/token would be the value of ticket:
The contention itself is contentious. Rule 32(6) provides that “value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both…”
Therefore, the critical term in Rule 32(6) is the word “redeemable” as Rule only provides for the value of token which is redeemable against supply of goods or services.
The word “redeem” has been defined in Cambridge dictionary as “to exchange a piece of paper representing a particular amount of money for that amount of money or for goods to this value”. In the given matter of the applicant, piece of paper i.e. Ticket is a specific supply itself and is not redeemed against any other supply of goods or service. Therefore, when ticket itself covers a specific supply, availing service against the ticket cannot be held to be redemption of the voucher against any other service or goods.