This recent Judgement passed by the Hon'ble Madras High Court has to an extent resolved the anomaly with respect to taxability of vouchers under the GST regime.
1. In the captioned matter, the petitioner who is into the business of manufacture and sale of ornaments through its retail outlet, as a part of sales promotion, has issued different types of Pre-paid instruments (hereinafter referred to as PPI's and/or Gift Vouchers). These gift vouchers are sold in its retail outlets as well as through online portals.
The above-referred judgement clarified the following issues:
- Whether such PPI's can be treated as supply of goods or supply of service; and
- The determination of time of supply of Gift Vouchers under Section 12 (4) of the CGST Act, 2017.
2. In relation to the said issue, the Appellate Authority for Advance Ruling (AAAR) on modifying the order passed by the Authority for Advance Ruling (AAR), held that the "Gift Voucher" issued by the petitioner was neither a supply of goods nor a supply of service. Hence, it is not relevant to determine whether a voucher is actionable claim. It further concluded that, in view of Section 12 (4) (a) of the CGST Act, 2017, the voucher would be taxable at the time of its issuance. Background of the case:
Aggrieved by the order of AAAR; the petitioner had filed this writ.
Summary of the judgement pronounced by HC
1. In the above matter, reliance was made on the Master Direction issued by the Reserve Bank of India, which defined "Pre-paid Instruments" and "Closed system PPI's". Since, the petitioner here, issued PPI's for facilitating the purchase of goods and services from its own brand only and met all parameters of Closed System PPI's, therefore it was held by the Hon'ble Court that there was no doubt that the "Gift Voucher" issued by the petitioner was a "Closed system PPI".
2. The Hon'ble High Court, after detailed analysis of various definitions i.e. definition of goods,
Actionable claim, voucher, instrument and document held that 'Gift Voucher' being a debt instrument shall qualify as an 'actionable claim', which constitutes neither supply of goods nor supply of services. Consequently, in light of Section 7(2) of the CGST Act, 2017 read with Sr.No.6 to Schedule III of the CGST Act; petitioner is not liable to pay tax on "Gift Voucher/Card"
3. Further, while responding to the issue of determination of time of taxability of Gift Vouchers, it was held by the Hon'ble High Court that –
If the Gift Vouchers were issued for specified and identified goods, or for specified value of merchandise, tax shall be payable at the time of issuance in view of Section 12 (4) (a) of the CGST Act since the supply (i.e. transfer) is occurring at the time of issuance.
4. Whereas, on the other hand if the goods or services were unidentified at the time of issue, the time of supply would get postponed to the actual time of redemption of the Gift Voucher to a future date when the sale of merchandise or goods will occur; in view of Section 12 (4) (b) of the CGST Act, 2017.
5. It was also held that, Customer can rightfully approach the Civil Court in case the petitioner -
- Denies redemption of the value in the Gift Voucher/card at the time of sale of merchandise; or
- Denies to credit the amount to the account of a customer after period of its validity if the "Gift Voucher/Card" was not redeemed by the customer.
6. Incidentally, the Hon'ble Karnataka High Court in case of M/s. Premier Sales Promotion Pvt. Limited vs. The Union of India [2023-VIL-67-KAR] dealt with matter pertaining to the taxability of Pre-paid instruments such as Gift Vouchers, Cash Bank Vouchers and E-vouchers wherein the petitioner would procure such PPI's from the issuers and supply them to its clients for specified face value. The said clients would in turn issue such Vouchers to their employees in the form of incentives or as consideration to other beneficiaries under promotional schemes. In the said arrangement, the vouchers involved were semi-closed PPI's in which the goods or services to be redeemed were unidentified at the time of issuance and such PPI's did not permit cash withdrawal and could be issued only with prior approval of RBI.
In the above case, it was held by the Hon'ble High Court that, since the transaction is of procurement and delivery of printed forms, which are equivalent to currency; the value printed on the form could be transacted only at the time of redemption of Voucher and not at the time of issuance of vouchers. This is similar to a pre-deposit and not supply of goods or services and thus the vouchers are neither good nor services and therefore could not be taxed.
Conclusion
In light of the referred cases, it can be summarized as below:
Gift Vouchers/Cards issued under the Scheme of "Closed ended PPI's" or "Semi-closed PPI's" neither constitutes as supply of goods nor supply of services. Therefore, in light of Section 7(2) of the CGST Act, 2017 read with Schedule III of the CGST Act; the issuance of vouchers under said scheme is not taxable.
In the case of Closed-ended PPI's
If the Gift Vouchers/Cards are issued for specified or identified goods, or for specified value of merchandise, tax shall be payable at the time of issuance; and in cases where the goods or services remains unidentified to be bought on a future date, tax is payable on such "goods" or "merchandise" only at the time of sale i.e. on its redemption.
In the case of Semi-closed PPI's
Since the goods are not identifiable at the time of issuance and the actual supply of goods or services takes place only when the voucher is presented for redemption by a customer.
Hence, in cases where the taxpayer is issuing close ended or semi-closed vouchers/PPIs, a reliance can be placed on the above judgements wherein the position with respect to taxability and time of supply has been cleared. With this, the question of double taxation has been put to rest. Further, it is pertinent to closely follow the clarification which CBIC may issue related to taxability and time of supply in case of vouchers/PPI.
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