CESTAT Chennai Upholds Denial Of CENVAT Credit To Loyalty Management Firm, Holds Gift Voucher Supply Is Trading

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled against Accentive (India) Private Limited, a loyalty management company, holding that it cannot retain CENVAT credit on goods and gift vouchers supplied under customer reward programmes because the activity amounts to trading.

While the tribunal upheld the tax demands and interest running into crores of rupees, it waived penalties for periods prior to May 14, 2015.

A bench of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao held that the procurement and supply of goods and gift vouchers is an independent activity.

"The procurement and supply of goods and gift vouchers by the appellant constitutes trading activity," the tribunal said, adding that such trading was non-taxable before April 1, 2011, and treated as an exempted service thereafter

Accentive runs loyalty and customer engagement programmes for corporate clients. Its work includes designing reward schemes, tracking points, and facilitating redemption. For redemption, the company procured goods and gift vouchers from third-party vendors and supplied them to customers.

The company argued that the vouchers were only a tool to deliver its services and that clients paid for a single service package. It also claimed that gift vouchers were actionable claims. The tribunal rejected these submissions.

The bench held that gift vouchers are not actionable claims. “They represent goods-in-lieu, and their trading attracts Rule 6 of CCR 2004 consequences,” it said.

The tribunal noted that Accentive bought vouchers, recovered their cost from clients, and paid VAT or CST, showing that the activity was trading and not service delivery.

The tribunal clarified that CENVAT credit is available only when inputs and input services are used to provide taxable services. Trading does not qualify. It noted that trading was a non-taxable activity before April 1, 2011, and was expressly treated as an exempted service from that date after the CENVAT Credit Rules were amended.

The bench held that the 2011 amendment was clarificatory and that CENVAT credit attributable to trading was never admissible, even before April 1, 2011. It said that after that date, credit could be retained only if the company maintained separate accounts or reversed proportionate credit under Rule 6, which it failed to do.

The tribunal also upheld the extended period of limitation, noting that the trading activity was not disclosed in statutory returns. Service tax demands and interest were confirmed. Penalties were waived only for periods prior to May 14, 2015.

Case Title: Accentive (India) Private Limited v. Commissioner of GST and Central Excise

Citation: 2026 LLBiz CESTAT (CHE) 23

Case Number: Service Tax Appeal Nos. 40364 and 40365 of 2016

Counsel for Appellant: N. Sri Prakash

Counsel for Respondent: Anandalakshmi Ganeshram