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Analysing the Judgement of Hon'ble Bombay HC holding meal vouchers as 'Goods' & Implications

CA Ankit Gulgulia 
on 25 May 2015

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Recently the Hon’ble High Court of Bombay have pronounced an order which is a land mark judgment for Indian E-commerce Industry specifically and including Coupon / voucher sub-industry considering the vacuum of judicial pronouncements on this aspect. The matter relates to CWP No. 5653 of 2010 & 7503 of 2013 decided on 20th March, 2015 in case of M/s Sodexo SVC India Private Limited vs. The State of Maharasthra & others in Hon’ble Bombay HC where the basic issue required to be addressed by the court was, 

Key Issue to be decided by Hon’ble HC -

‘Whether the Sodexo meal vouchers are goods for the purpose of levy of Octroi and Local Body Taxes (LBT)?”

Facts of the Case – The Arrangement

M/s Sodexo SVC India Private Limited (hereinafter referred to as ‘Petitioner’ / ‘Sodexo’) is engaged in conducting a business of providing pre­printed Sodexo Meal   Vouchers (“Vouchers"). Sodexo  enters  into  a  contract  with  its  customers  for  issuing  the  said vouchers (Say Rs 100/- face value). The  customers  in  turn  distribute  the  said vouchers  to  their  employees  who  are  the  actual  users  of  the  said vouchers. It  is  stated  that  Sodexo has  contracts  with various  affiliates  such  as  restaurants,  departmental  stores,  shops,  etc. Under  the  affiliate  contracts,  the  affiliates  are  required  to  provide  food and  other  items  on  presentation  of  the  said  vouchers  by  the  users. The affiliates  are  bound  to  honour  vouchers  once  presented  by  the  users. The  affiliates  after  receiving  the  said  vouchers,  present  the  same  to  Sodexo. On   receipt   of   the   vouchers,   Sodexo reimburses the affiliates after deducting service charges (say Rs 15/)

To operate such a model of paper based voucher, Sodexo had obtained  certificate  of  authorization  from  the  Reserve Bank  of  India  under  Section  7  of  the  Payment  and  Settlement  Systems Act, 2007 to  operate  a  payment system  for  issue  of  meal  and  gift  vouchers  in  the  form  of  'paper  based vouchers'  and  'smart  meal  cards'  with  effect  from  25th  June  2009.

The Issues

a. Whether  the  Sodexo  Meal  Vouchers  are  ‘goods’  for  the purposes  of  levy  of  Octroi  and  LBT  ?

b. Whether  a  Municipal  Corporation constituted  under the  Maharashtra  Municipal  Corporations  Act,  1949  is entitled  to  levy  and/or  collect  Octroi  or  Local  Body Tax  (LBT)  on  Sodexo  Meal  Vouchers  in  accordance with  the  provisions  of  the  Maharashtra  Municipal Corporations   Act,1949 and the Rules framed thereunder?

Petitioner’s Contention

a. The said vouchers  are nothing but  payment  instructions  or  payment  instruments  issued  under a  payment  system  operated  under  the  said  Act  of  2007  as  per  the authorization  received  from  the  Reserve  Bank  of  India.

b. Under  both  the  Octroi  Rules  and  the  LBT  Rules,  the  taxes  can  be collected  on  the  goods. Incidentally, since the octroi and LBT legislation does not throw light on definition of ‘Goods’ inference can be drawn on the other provisions of the Act i.e. Octroi  or  LBT  can  be  levied  on  the  consumption, use  or  sale  of  goods  within  the  limits  of  Municipal  Corporations. The  said  vouchers  are  a  medium  to  acquire  any  article  for consumption,  use  or  sale  and  the  said  vouchers  are  not  capable  of consumption,  use  or  sale  by  themselves. Simply to say that the said vouchers are only medium of payment.

c. Vouchers are similar to ‘Lottery tickets’ which held not be ‘goods’ by relying on Sunrise Associates  v.  NCT  of  Delhi (2006)5 SCC 603

d. Vouchers are similar to ‘papers and files in possession of a legal practioner’ by relying on R.D.Saxena  v.  Balram  Prasad  Sharma (2000)7 SCC 264

e. He placed reliance on State Bank  of  India v.  Neela  Ashok  Naik  and  Another AIR 2000 Bom. (151) wherein fixed deposit receipts were held to be goods on their characteristic of being capable to be sold, purchased or consumed, but the said vouchers do not possess any such charactersictic.

f. He also relied on other judgements viz Bharat  Sanchar  Nigam  Ltd.  and  Another  v.  Union  of  India  and  Others (2006)3 SCC 1 & TATA  Consultancy  Services  v. State  of  Andhra  Pradesh (2005)1 SCC 308 for laying down the characteristics of ‘goods’ and justifying as to said vouchers do not stand as ‘goods’ within the prescribed characteristics.

Revenue’s Contention

a. Revenue simply relied upon on the thesis that said vouchers were capable  of  use and/or  consumption  as  well  as  sale  within  the  limits  of  the  Municipal Corporations.

b. In support of above, revenue  relied  upon  a  decision  of  the  Division  Bench  in  the  case of  Maharashtra  Chamber  of  Commerce  Industries  &  Agriculture  &  Others v.  State  of  Maharashtra ,  through  its  Secretary  &  Others 2004(1) Bom.C.R. 137  and  Small  Scale Interpreneurs  Association  and  Others  v.  State  of  Maharashtra  and  Others 2007(3) Bom.C.R. 496.

Key Judicial Lay-downs

a. The   said   vouchers   are   capable   of   being   sold   by   the Petitioner  after  they  are  brought  into  the  limits  of  the  City. In  fact, going  by  the  scheme  narrated  above,  the  said  vouchers  are  sold  by  the petitioner  to  its  customers  for  value.

b. Relying on Tata Consultancy services (supra), court pointed that  (Para 81)

'Goods'  may  be  a  tangible  property  or  an intangible  one.  It  would  become  goods  provided  it has  the  attributes  thereof  having  regard  to  (a)  its utility;  (b)  capable  of  being  bought  and  sold;  and (c)  capable  of  transmitted,  transferred,  delivered, stored   and   possessed.

Going  by  the  test  laid  down  in  Paragraph  81  of  the  said decision  of  the  Apex  Court  in  the  case  of  TATA  Consultancy  Services,  the said  vouchers  have  its  utility,  the  same  are  capable  of  being  bought  or sold  and  the  same  are  capable  of  being  delivered,  stored  and  possessed. Hence said vouchers are in the nature of ‘goods’.

c. Citing the examples of several instances viz lottery tickets, Fixed deposit receipts and electromagnetic waves held that such printed paper vouchers are in the nature of ‘goods’ and are not in the nature of actionable claim. The said voucher cannot be equated with lottery ticket or electromagnetic waves.

How this Judgement opens up Pandora Box?

a. The judgment was limited only to determine the applicability of LBT and/or Octroi in respect of sale of Sodexo Meal Vouchers within the local municipality. Such judgment, though has left open the issue of whether such meal vouchers would qualify as 'goods' for other Acts as well.

b. Is it that the test laid out in TCS’s (Supra) and other cases referred to above conclusive to identify whether a particular item to be goods?

c. If such vouchers are held to be goods, will the redemption of such voucher tantamount to barter transaction?

d. Can this judgement have implications on coupons, gift cards and gift vouchers remains a point to ponder?

e. A lot many issues which arise because of this judgment remains unanswered and requires due consideration

f. Paper based voucher is similar to cases of cash cards used by several malls and retail outlets which create virtual currency on the card against which items can be purchased from retail outlets, does this sought of virtual currency also qualify to be ‘goods’?.

Before Parting.

The decision of Hon’ble HC in the above case can lead to wide implications and the ones which might to un conductive to the trade and potentially lead to double taxation with ancillary implications. Industry though shall push the caution button to ensure that the mitigation strategy shall be duly implemented. Further, one may absurdly even see advance payment (as similar to said voucher) as ‘Goods’ by applying this ratio laid down!

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