Focus Point

Clearing the air on levy of GST on 'Gift Vouchers'

Vouchers have been a popular mode of gifting in this era, considering the ease of their purchase and redemption. In general parlance, a voucher means a denominated document that can be used to purchase either a defined product(s)/service(s) or any products/ services for a prescribed amount. While gifting has been made easy by introducing vouchers, their taxability under the GST law has been a bit confusing - whether GST should be levied on the purchase of vouchers per se or redemption thereof. Whether these vouchers can be treated as 'goods' or 'services' or 'actionable claims'? Can vouchers be treated as equivalent to money?

However, the recent judgment of Madras HC in the case of Kalyan Jewellers India Limited vs. Union of India & Ors.1 seems to have answered the aforementioned questions, thereby alleviating any further controversy around the subject matter.

Before proceeding to analyze the said ruling, we may go through the provisions of the GST legislation relevant thereto.

Section 2(118) of the CGST Act defines a 'voucher' to mean "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 Section 2(1), an 'actionable claim' shall have the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882 (4 of 1882). In terms of the said provision, an actionable claim means "a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent."

Sections 12 and 13 of the CGST Act prescribe the Time of Supply of Goods and Services, respectively. As per subsection (4) thereof, "In case of a supply of vouchers by a supplier, the time of supply shall be – (a) the date of issue of voucher, if the supply is identifiable at that point; or (b) the date of redemption of voucher, in all other cases."

Background of the case

  • As part of the sales promotion strategy, Kalyan Jewellers India Limited sells gift cards/vouchers at their retail outlets as well as through online portals. Since these vouchers qualify as Prepaid Payment Instruments (PPI), they are subject to the regulatory framework outlined in the Payment and Settlement Act, 2007, and the Master Directions dated 11 October 2017 issued by the RBI.
  • The Tamil Nadu Authority for Advance Ruling2 held that the supply of gift vouchers constitutes a 'supply of goods' liable to GST at 12% in the case of paper-based gift vouchers classifiable under CTH 4911 or at 18% in the case of gift cards classifiable under CTH 8523. Consequently, the time of supply will be determined in terms of Section 12(4) of the CGST Act.
  • Aggrieved thereby, the company approached the Appellate AAR3, which held that the gift vouchers are neither goods nor services; however, at the same time, concluded that the same would be taxable at the time of their issuance in view of Section 12(4)(a) of the CGST Act.
  • The company's rectification application had no bearing on the Appellate Authority for Advance Ruling's (AAAR) conclusion, and hence, they challenged the same before the Madras HC.
  • HC upheld AAAR's view that 'voucher' per se is neither good nor service in view of Section 7 r/w Schedule III to the CGST Act and is rather an actionable claim as defined in Section 2(1) of the CGST Act r/w Section 3 of TOPA. Only the underlying transactions are taxable.
  • However, it rejected the notion that 'time of supply' falls exclusively on the date on which the gift voucher is issued. Instead, it held that the tax liability is determined based on the inherent nature of the transaction. Therefore, the company will not be liable to pay tax at the time of issuance to its customers.
  • Accordingly, the HC clarified the taxability as follows:
    • If the gift vouchers/cards are for a specified item of jewelry of specified value, tax is payable at the time of their issuance, as there is supply (i.e., transfer) within the meaning of the GST law. Therefore, tax is payable in view of Section 12(4)(a), i.e., at the time of issuance of such vouchers.
    • On the other hand, if there is no supply, i.e., no transfer within the meaning of Section 7, the time of supply is postponed to the actual time of redemption of the voucher when the customer presents the same at the counter. Resultantly, the company is liable to tax on the date of redemption under Section 12(4)(b).
    • Unless there is a clear identity of the "goods" or "services" and their value is ascertained on the date of issuance of the 'gift voucher,' the question of taxing a future supply of an unspecified good or service which is to take place on a future date is not contemplated under Section 12(4). This is the true purport of Section 12(4) of the GST laws.
  • In view of the above, HC partly allowed the writ petition by modifying the AAAR order to the relevant extent.

While the aforesaid ruling provides the much-needed clarification on the treatment of gift vouchers/cards under the GST law, we may also look at the jurisprudence around this topic.

Rulings in other cases

  • In the case of Sodexo SVC India (P) Ltd vs. State of Maharashtra4 , the Hon'ble SC ruled that meal vouchers are neither 'sold' by the assessee to its customers nor they could be traded/sold separately; hence, they were not 'goods' on which Octroi/LBT could be levied under Maharashtra Municipal Corporation Act, 1949. The Apex Court observed that the affiliates got money for goods and not the assessee, who only got service charges for services rendered to customers and the affiliates. The assessee was only a facilitator and medium between the affiliates and customers. The essential character of the entire transaction was to provide services by the assessee, which was achieved through vouchers.
  • The Karnataka HC, in the case of Premier Sales Promotion Pvt. Ltd. vs. Union of India5 , while dealing with the taxability of gift and cashback vouchers, ruled that, in substance, the transaction between the assessee and his clients is the procurement of printed forms and their delivery. The printed forms are like currency/money.

The value printed on the form can be transacted only at the time of redemption of the voucher and not at the time of delivery of vouchers to the assessee's clients. Therefore, the issuance of vouchers is similar to "pre-deposit" and not the supply of goods or services. Hence, vouchers are neither goods nor services and, therefore, cannot be taxed.

Our Comments

While the Madras HC's decision has provided clarity on the taxability of gift vouchers per se, it would be worthwhile if the GST Council and CBIC issued a comprehensive clarification on the treatment of such instruments. They should also throw light on the disclosures in GST returns (given that tax invoices against the underlying supply of goods and/ or services would be issued in the future) as well as the implications in cases where customers do not redeem the gift vouchers/cards within the prescribed validity period.

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1. W.P. No. 5130 of 2022 and W.M.P. Nos. 5227 & 5228 of 2022

2. 2020 (32) G. S. T. L. 689 (A. A. R. - GST - T. N.)

3. 2021 (50) G. S. T. L. 96 (App. A. A. R. - GST - T. N.)

4. 2016 (331) ELT 23 (SC)

5. 2023 (2) TMI 130 - KARNATAKA HIGH COURT

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