TRANSACTIONS OF SALE VOUCHERS – APPLICABILITY OF GST

[Mr. M. GOVINDARAJAN]

Meaning of ‘voucher’

Section 2(118) of Central Goods and Services Tax Act, 2017 defines the term ‘voucher’ as 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.

Vouchers – goods?

The primary question arises is whether the vouchers can be treated as goods.  The Supreme Court in SODEXO SVC INDIA PRIVATE LIMITED VERSUS STATE OF MAHARASHTRA & OTHERS [2015 (12) TMI 1041 - SUPREME COURT] held that the vouchers are not goods.  The transaction of trading in vouchers is not transactions of sale or supply of goods or services because vouchers are payment instruments or consideration for sale or supply of goods or services at a future date. 

IN RE: PREMIER SALES PROMOTION PVT. LTD. [2021 (12) TMI 1299 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNARAKA],  the Appellate Authority for Advance Rulings ruled that the vouchers amount to goods and liable to tax under the Act. 

The appellant is involved in the business of providing marketing services in the area of sourcing and supply of E-Vouchers. Work Orders are issued by the clients to the appellant from time to time for the supply of vouchers having a pre-defined value.   The client issues such vouchers to their customers who in turn can redeem the vouchers at any of the specified merchants who have agreed to accept the vouchers as consideration for goods or services supplied by them.   The vouchers under transactions are ‘gift vouchers’, ‘cash back vouchers’ and ‘open vouchers’.   The appellant is purchasing Gift Vouchers, Cash Back Vouchers and Multiple Option Vouchers, for example-

• Amazon E-Gift Vouchers,
• Shoppers Stop E-Gift Card,
• Sony Pictures E-Gift Vouchers,
• Makemy Trip E-Gift Vouchers,
• Flipkart E-Gift Vouchers,
• Dominos E-Gift Voucher,
• Big Bazar E-Gift Vouchers,
• Big Basket E-Gift Vouchers,
• Myntra E-Gift Vouchers, etc)

and supplying to clients. 

The appellant wanted advance ruling in this transaction.  Therefore the appellant filed an application before the Authority for Advance Ruling.  The advance rulings sought for in the said application are-

• Whether the vouchers themselves, or the act of supplying them is taxable, and at what stage, for each of the three categories of transactions undertaken by the Appellant?
• If the answer to the above is in the affirmative, what would be the rate of tax at which this would be taxable i.e what category would this be taxed under?

The Authority for Advance Ruling ruled as detailed below-

• The supply of vouchers is taxable and the time of supply in all three cases would be governed by Section 12(5) of the CGST Act, 2017.
• The rate of tax on the supply of vouchers is 18% GST as per entry no. 453 of Schedule III of Notification No. 01/2017-Central Tax (R) dated 28.06.2017.

Aggrieved against the order of Authority for Advance Ruling the appellant filed the present appeal before the Appellate Authority for Advance Ruling.

The appellant submitted the following before the Appellate Authority for Advance Ruling-

• In all types of 3 vouchers the supplier indicates his willingness to supply goods or services or both to the customer of recipient of vouchers at a later point of time when the eligible customers of the recipient of voucher redeems these vouchers; that at the time of supplying the vouchers, there is a promise to supply goods or services or both to the customers at the time the customer redeems these vouchers. 
• The vouchers are instruments which are redeemable at their face value for the goods or services or both to be supplied by the specified merchant or the issuer of the voucher itself. 
• An obligation exists to accept the voucher as full or partial consideration for the supply of goods or services or both. 
• The vouchers are payment instruments which facilitate purchase of goods or services.
• The vouchers are thus consideration in full or part for the goods or services or both to be supplied at the time of redemption of the voucher by the beneficiary. 
• When the voucher is defined as “consideration” for the purchase or supply of goods or services, it is not correct to hold that the voucher is goods.
• The vouchers are squarely covered within the ambit of prepaid payment instruments (‘PPI’ for short), which is nothing but money or consideration for the future supply of goods or services; that as per the relevant RBI Master Directions, Guidelines, FAQs and the Payment and Settlement Systems Act, 2007.
• The appellant is the third party issuer of vouchers, which are redeemable by the beneficiaries for goods/services from the specified merchants from whom the appellant has obtained the vouchers.
• The appellant is engaged in the issuance of PPIs which is only a transaction in money and not classifiable under goods or services subject to tax under GST law.
• The Authority for Advance Ruling  has held that the payment instruments supplied by the appellant to their clients, cannot be covered under the definition of 'money' at the time of supplying them; that they take on the color of money only when it is used for payment of a consideration for the supply. This interpretation of the lower Authority is erroneous and contrary to the definition of “voucher” as per Section 2(118) of the Act.
• In ‘IN RE: M/S. KALYAN JEWELLERS INDIA LIMITED [2021 (4) TMI 885 - APPELLATE AUTHORITY FOR ADVANCE RULING, TAMILNADU]’  it was held that since voucher is only an instrument of consideration and not goods or services, the same is not classifiable separately but only the supply associated with the voucher is classifiable according to the nature of goods or services supplied in exchange of the voucher earlier issued to the customer.

 The appellant prayed that the vouchers are not liable to tax under GST and the impugned ruling may be set aside.

The Appellate Authority for Advance Ruling observed that the appellant is not the issuer of the voucher and is also not authorized by RBI to issue any voucher.  The appellant is merely trading in the vouchers issued by the issuer.  The vouchers are issued in accordance with the Payment and Settlement Systems Act, 2007 and the Policy Guidelines issued by the RBI from time to time.   The Voucher assures the beneficiary the goods or services specified in it. It is a claim for beneficial interest in the goods or services assured in the voucher.

The issue to be determined by the Appellate Authority for Advance Rulings is whether the vouchers traded by the appellant are a supply of ‘goods’ and if so, whether they qualify as ‘actionable claim’. The answer to the above will determine the taxability of the vouchers at the hands of the appellant and also the rate of tax.

The Appellate Authority for Advance Ruling analyzed the provisions of relevant sections of the Act, the Payment and Settlement Systems Act, 2007, FAQs and guidelines issued by Reserve Bank of India.  The Appellate Authority for Advance Ruling observed that the appellant is dealing with E-Gift vouchers, Cash back vouchers in E-wallets and electronic based multi options voucher.  The appellant is not the issuer of the voucher and also not authorized by RBI to issue vouchers, but is the third party who buys and sells the vouchers. 

Money is out of purview of the Act.  The Authority for Advance Ruling held that voucher takes on the color of money only when it is redeemed by the beneficiary at the time of purchase of goods and/or services.  The Appellate Authority for Advance Ruling is agreeable on the findings of the Authority for Advance Ruling. 

The Appellate Authority for Advance Ruling next considered the question whether the voucher amounts to ‘goods’.   The appellant purchases the vouchers by paying a consideration to the issuer. The vouchers are also sold to the clients of the appellant for a consideration. The Appellate Authority for Advance Ruling found from the invoices issued to the customers for the sale of the vouchers that the same have been sold at the face value of the vouchers. The vouchers have thus both a value and an ownership and the ownership gets transferred from the person who first purchases the voucher from the issuer to the ultimate beneficiary who redeems the voucher. Therefore, the vouchers qualify to be considered as movable property and hence are to be considered as 'goods'.

Now the Appellate Authority for Advance Ruling considered the contention that the vouchers are ‘actionable claims’.  The term ‘actionable claim’ has got two limbs. One is that it is a claim to any unsecured debt.   The second limb is about claim to beneficial interest in movable properties not in actual or constructive possession of the claimant which shall be recognized as affording ground for relief by a civil court.   The vouchers are not a claim to any debt. As regards the second limb of the definition of ‘actionable claims’ i.e., beneficial interest in movable property, it is seen that right of a person (claimant) to take possession of movable property from another person is actionable claim of that person if the claimant has a beneficial interest in the movable property. It becomes important here to note that the claim must be of certain movable property and be in possession of the other person at the time of claim.

The Appellate Authority for Advance Ruling ruled that the vouchers traded by the appellant are goods and not actionable claims. The supply of vouchers by the appellant is a supply of goods in terms of Section 7 of the CGST Act. The Appellate Authority for Advance Rulings is in complete agreement with the ruling given by the lower Authority on the aspect of value of the vouchers for the purpose of the Act, the rate of tax and the time of supply of the vouchers by the appellant. Since the appellant is not the issuer of the voucher, the provisions of time of supply under Section 12(4) will not apply and the time of supply will be governed by the provisions of Section 12(5) of the CGST Act.