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1.3 Briefly stated the facts are that the appellant is engaged in the business of loyalty management and customer relationship programmes for its clients. The scope of its activity broadly includes conceptualizing loyalty schemes, managing customer databases, tracking accumulation and redemption of loyalty points and facilitating redemption through supply of goods and/or gift vouchers procured from third-party vendors. 1.4 During the course of audit, the Department took the view that the appellant was engaged in trading of goods / gift vouchers, which was a non-taxable activity prior to 01.04.2011 and an exempted service thereafter, by virtue of the amendment to Rule 2(e) of the CENVAT Credit Rules, 2004. It was alleged that the appellant had wrongly availed and utilised CENVAT credit on common input services attributable to such trading activity, in contravention of Rule 6 of the CENVAT Credit Rules, 2004.

3. The Ld. Advocate Mr. N. Sri Prakash, appeared on behalf of the Appellant and advanced detailed submissions in support of the Appellants and the Ld. AR Ms. Anandalakshmi Ganeshram, appeared for the Revenue and defended the Impugned Orders.

4. The contentions of the Ld. Advocate Mr. N. Sri Prakash are summarised as below: -

4.1 That it is engaged in providing loyalty management and customer relationship services to corporate clients, which include designing loyalty programmes, managing customer databases, tracking accumulation and redemption of reward points and facilitating such redemption. The procurement and supply of goods or gift vouchers is only incidental and ancillary to the principal taxable service and that the Department has erred in artificially segregating the activity and treating the same as trading.
under the CENVAT Credit Rules, 2004

9.1 The Ld. Counsel for the appellant submitted that the appellant is primarily engaged in providing loyalty management services, which include designing loyalty programmes, managing customer databases, tracking accumulation and redemption of points, and facilitating redemption through supply of gifts or vouchers. The supply of goods or gift vouchers is only incidental to the main taxable service, and such supply cannot be artificially vivisected and treated as an independent trading activity. The appellant contended that the consideration received from clients is for an integrated service package, and the cost of gifts or vouchers is merely a reimbursable element forming part of the composite service. It is further argued that prior to 01.04.2011, trading was neither a taxable service nor an exempted service, and therefore Rule 6 of the CENVAT Credit Rules, 2004 could not be invoked for the period prior to the said date. The appellant placed reliance on the decisions of the Hon'ble Supreme Court in BSNL v. Union of India - 2006 (2) STR 161 (SC) and Larsen & Toubro Ltd. - 2015 (39) STR 913 (SC) to contend that composite contracts cannot be artificially split for the purpose of taxation.