CESTAT Chandigarh Holds Credit Card Cashback Incentives Not Taxable, Upholds Relief To Tek Travels

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 14 May held that cashback incentives received from banks on the use of commercial credit cards for airline ticket bookings do not constitute consideration for any taxable service under the Finance Act, 1994.

Judicial Member S.S. Garg and P. Technical Member Anjani Kumar upheld the Commissioner's order dropping the service tax demand of Rs. 8.03 crore raised against Tek Travels Pvt. Ltd. on cashback incentives received from banks for using commercial credit cards. The Bench held:

“The agreements/the letters do not indicate any activity that is to be performed by the respondent-assessee in lieu of the cash incentive except using the card for making payment....”

Tek Travels, an approved agent of the International Air Transport Association (IATA) engaged in online air ticket booking services, used commercial credit cards issued by banks such as HDFC Bank and American Express for airline ticket bookings.

The Department alleged that Tek Travels promoted the banks' business and brand through extensive use of such cards, and argued that the cashback incentives or reward points earned by the company amounted to consideration for a declared service under Section 66E(e) of the Finance Act, 1994.

It issued show cause notices covering the period from 2013-14 to 2017-18 and proposed a service tax demand of over Rs. 8.03 crore along with interest and penalties. By an order dated 31 December 2018, the Commissioner of Central GST, Gurugram dropped the proceedings, after which the Revenue filed an appeal before the Tribunal.

Before the Tribunal, the Revenue argued that Tek Travels carried out an activity for consideration by using commercial credit cards and therefore satisfied the definition of “service” under Section 65B(44) of the Finance Act. It further contended that the cashback incentives arose from a contractual obligation between Tek Travels and the banks, and argued that the taxpayer failed to disclose material facts, thereby justifying invocation of the extended limitation period.

Tek Travels argued that no service provider-service recipient relationship existed between it and the banks. It submitted that banks merely offered cashback incentives to encourage greater usage of credit cards and could not treat those incentives as consideration for any service. The company also argued that the Revenue attempted to introduce a completely new ground under Section 66E(e) at the appellate stage, although the original show cause notice never included that ground.

The Bench accepted Tek Travels' submissions and held that mere use of a credit card for making payments does not amount to promotion or marketing of a bank's business. It observed that the Revenue failed to place any evidence on record to establish that Tek Travels undertook promotional activity for the banks in return for cashback incentives. It stated:

“…while using the commercial card issued by the bankers the respondent-assessee is but promoting their own business and not in any way the business of the bankers…”

Relying on CBIC Circular No. 214/1/2023-ST dated 28 February 2023, the Tribunal observed that an activity qualifies as a declared service under Section 66E(e) only when parties enter into a specific agreement to undertake an obligation and a corresponding flow of consideration exists for that activity. It found that no such obligation existed in the present case apart from usage of the card for payments.

Holding that banks merely provided cashback incentives to increase credit card usage and did not pay consideration for any taxable service, the Tribunal found no merit in the Revenue's appeal.

Accordingly, the CESTAT dismissed the and dismissed it.

For Appellant: Shri Siddharth Jaiswal and Ms. Amita Gupta, Authorized Representatives

For Respondent: Ms. Krati Siingh and Ms. Jashanpreet Kaur, Advocates