Taxmann's Analysis | Know the Controversy Around the Taxability of 'Vouchers' Under GST

Know the controversy around the taxability of ‘Vouchers’ under GST

Kishore Kumar CA

Know the controversy around the taxability of ‘Vouchers’ under GST

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Know the controversy around the taxability of ‘Vouchers’ under GST

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In modern India, vouchers, gift cards and prepaid instruments redeemable against specific or multiple goods and/or services are becoming a new norm.

Also, companies, as a part of their brand promotion strategy, are increasingly adopting gifting vouchers and prepaid instruments to their channel partners or customers upon achieving specific targets. With this increasing use of vouchers and gift cards, examining the GST implications on supply of these vouchers and gift cards becomes essential.

The taxability of vouchers and gift cards under the GST law is quite complex. There are specific provisions under the GST law for the taxability of single-purpose and multipurpose vouchers. To begin with, GST is a tax levied on the supply of goods and/or services.

Therefore, to levy GST on the issue or redemption of vouchers and gift cards, the same must be classified either as ‘goods’ or ‘service’.

‘Goods’ are defined under the GST law as every kind of movable property other than money and securities, including actionable claims. Further, the term ‘service’ has been defined under the GST law as anything other than goods, money and securities.

Vouchers have been defined under the GST law as an ‘instrument’ with an obligation to accept the same as consideration or part consideration for a supply of goods or services or both. Simply put, vouchers are construed as payment instruments used as consideration for procuring goods and/or services. Therefore, vouchers are often referred to as money or actionable claims.

The Hon’ble Supreme Court in Sodexo SVC India (P.) Ltd. v. State of Maharashtra (2015) 64 taxmann.com 396/[2016] 53 GST 293/331 ELT 23 (SC) has held that the sale of Sodexo meal vouchers is not goods in itself; instead, they are merely a medium of facilitation between affiliates and customers.

In another case, the Supreme Court in Idea Mobile Communication Ltd. v. CCE&C [2011] 12 taxmann.com 307/32 STT 262 (SC), concerning the taxability of SIM cards, has held that SIM cards are never sold as goods independent from services provided therein.

From these precedents, it can be observed that Courts have also been viewing the supply of vouchers as payment instruments towards its underlying supply and not as an independent supply.

Where the supply of vouchers and/or gift cards is viewed as mere payment instruments in reference to their underlying supply of goods and/or services, the moot question arises: what is the need to have a specific provision for the point of supply of vouchers under the GST law? Can vouchers be taxable under GST independent of the supply of goods and services?

In this article, the author delves into the intricacies of voucher-related provisions under GST Law and jurisprudence on the issue.

The taxation provision of vouchers under the GST law finds its traces under the ‘time of supply of goods’ provisions as contained in Section 12(4) of the Central Goods and Services Tax, 2017 (CGST) Act. The said provision reads as follows: Know the controversy around the taxability of ‘Vouchers’ under GST

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In case of 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.

From the above, it emerges that GST is payable on the single-purpose voucher, at the time of issue of the voucher, where the supply is identifiable at the time of the issue. Meanwhile, for a multi-purpose voucher, GST is payable at the time of its redemption.

The above provision has existed in the GST law since its introduction. Notably, when GST was implemented in July 2017, the ‘time of supply’ provisions provided that the time of supply of goods shall be earlier of (a) the date of issue of invoice or (b) the date of receipt of payment. This means there was a requirement to pay GST even on advance payment for the supply of goods. As a chronology, the time of supply of the ‘single-purpose voucher’ is aligned with the time of supply of goods to levy tax on advance payments (i.e. at the time of issue of the voucher itself).

However, the requirement to pay GST on advance payment for the supply of goods was done away with effect from November 2017 vide Notification no 66/2017-Central Tax. Unfortunately, the specific provision for the time of supply of a single-purpose voucher remains unchanged, leading to the current anomaly with respect to its taxation.

Also, the way the provision for ‘time of supply of voucher’ is worded, it appears that the government intends to tax the supply of vouchers independently of the supply of underlying goods and/or services. Therefore, double taxation is possible in the case of a single-purpose voucher, one at the time of issue of the voucher and another at the time of supply of underlying goods and/or services. Likewise, multi-purpose vouchers may be exposed to two-way taxation being seen as ‘barter transactions’. Notably, barter transactions are specifically covered within the definition of supply under Section 7 of the CGST Act, 2017.

This apprehension gets further aggravated in view of Rule 32(6) of the CGST Rules, 2017, which deals with the ‘determination of value’ which provides that in the case of a voucher, the value which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Thus, the current provisions contained in the GST law suggest the taxability of vouchers independent of the supply of underlying goods and/or services.

Also, vouchers and/or gift cards typically have a validity period. If the receiver fails to redeem the voucher/gift card within the prescribed time period, it becomes a piece of paper with zero value. Therefore, another challenge the industry is facing is with respect to extra GST outlay at the time of issue of voucher in situations when GST is paid, but there is no corresponding supply of goods and/or services as the receiver fails to redeem the voucher on time. In the absence of any specific provision for refund or adjustment of GST so paid in such situations, the GST so paid is becoming an extra cost to the businesses.

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Know the controversy around the taxability of ‘Vouchers’ under GST

Ever since the introduction of GST, the taxability of vouchers has been a bone of contention. Various advance rulings have adopted contradicting tax positions with respect to the taxability of vouchers. The AAR of Tamilnadu state. Kalyan Jewellers India Ltd. In re [2021] 127 taxmann.com 37/86 GST 472/2021 (50) G.S.T.L. 96 (AAAR- Tamil Nadu) has held that Prepaid Instruments (PPIs) in gift vouchers and gift cards shall be classified as goods and shall be taxed independently from their underlying supply. On appeal before the Appellate Advance Ruling Authority (AAAR), the earlier ruling was reversed to hold that vouchers are a means for advance payment of consideration for future supplies of goods or services. Vouchers, an instrument used to settle an obligation, is a type of money. However, the AAAR further held that GST shall be levied at the rate of underlying goods/services and the time of supply of vouchers will be determined as per the applicable provisions.

Recently, the Karnataka High Court in the case of Premier Sales Promotion (P.) Ltd. v. Union of India [2023] 147 taxmann.com 85/2023 (70) G.S.T.L. 345/96 GST 363 has held that vouchers are mere instruments accepted as consideration for the supply of goods or services and have no inherent value of their own. The Court further held that vouchers fall under the definition of ‘Money’ as defined under the GST law, and the issuance of vouchers is neither a supply of goods nor services. The decision comes as a huge sigh of relief for India Inc. as it is likely to put an end to emerging disputes.

In the author’s view, the supply of vouchers per se is clearly covered within the ambit of money and, hence, should be excluded from the GST net either in the form of actionable claims or otherwise. The consideration charged (if any) by the supplier of vouchers (beyond the inherent value that the vouchers represent) may be subject to a levy of GST. It is expected that the government may soon come up with a detailed clarification regarding the taxability of vouchers, especially single purpose vouchers, and confirm that the vouchers are not the subject matter of independent GST levy. Alternatively, the GST Council may recommend deleting Section 12(4) of the CGST Act itself. This will clear the air around ongoing litigations and end this double whammy with respect to its taxability.

Know the controversy around the taxability of ‘Vouchers’ under GST

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Our Associations

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Indian Institute of Banking & Finance

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Know the controversy around the taxability of ‘Vouchers’ under GST

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Know the controversy around the taxability of ‘Vouchers’ under GST