Analysis of GST Council's Decision on Issues pertaining to Taxability of Vouchers

In a significant move to address long-standing concerns regarding the taxability of vouchers under GST, the GST Council made the following recommendations:

i. To omit sections 12(4) and 13(4) from CGST Act, 2017 and rule 32(6) from CGST Rules, 2017 to resolve ambiguities in the treatment of vouchers.

ii. To issue clarification on the following issues:

a. Transactions in vouchers shall be treated neither as a supply of goods nor as a supply of services.

b. Distribution of vouchers on principal-to-principal basis shall not be subject to GST. However, where vouchers are distributed on principal-to-agent basis, the commission/fee or any other amount charged by the agent for such distribution is taxable under GST.

c. Additional services such as advertisement, co-branding, marketing and promotion, customization and technology support, customer support etc. related to vouchers would be leviable to GST on the amount paid for these services.

d. Unredeemed vouchers (breakage) would not be considered as supply under GST and no GST is payable on income booked in the accounts in respect of breakage.

Our Comments

As per Sec 2(118) "voucher" means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument;

As per S 2(75) "money" means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;

Incase Vouchers are recognised by RBI, then they are money.

As per Sec 2(1) read with section 3 of the Transfer of Property Act, 1882 (4 of 1882) "actionable claim" is a "claim for debt"

Incase Vouchers are not recognised by RBI, then they are actionable claim.

As per Entry 6 of Sch II of CGST Act, Actionable claims, other than 4[specified actionable claims] are TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES.

Hence, Vouchers are not 'goods' or 'services' and No GST is leviable on transactions in them. Therefore there is no question of Time of Supply or Valuation.

Other Clarifications for Vouchers 

i. Distribution of vouchers on principal-to-principal basis shall not be subject to GST - Since vouchers are not goods or services

However, where vouchers are distributed on principal-to-agent basis, the commission/fee or any other amount charged by the agent for such distribution is taxable under GST - Since commission is charged for services rendered.

ii. Additional services such as advertisement, co-branding, marketing and promotion, customization and technology support, customer support etc. related to vouchers would be leviable to GST on the amount paid for these services - Since these are specific services rendered.

iii. Unredeemed vouchers (breakage) would not be considered as supply under GST and no GST is payable on income booked in the accounts in respect of breakage - There is no separate supply of service per-se.