Since 2017, when GST came to India in indirect taxation and digitalisation was promoted, some companies like Paytm, Gpay, Amazon pay etc came up with exciting cashbacks and other promotional schemes such as “scratch cards” this have been increasingly come under scrutiny.
In this article I will be discussing about a recent ruling made by the Telangana Authority for Advance Rulings in the matter of M/s Apollo Tyres Ltd. This ruling have reignited the debate, stating whether the scratch cards can be seen as a genuine promotional gift, or their nature is similar to the actionable claims or we can say gambling?
Hence I wanted to express my own views about the implications of the above AAR ruling, interpret it within the four corners of the GST law, analyse comparable legal aspect, and explore the broader consequences for businesses employing promotional incentive mechanisms.
What is the Scratch Card Scheme?
This is the most common marketing technique in India where the companies, which are dealing directly with consumers or sectors that are directly facing consumers often issue “scratch cards” so that sales could be increased. Remember you received a toy in your cracks packet few years ago which used to excite us as a children?
Similarly, like those cracks packets, these cards also offer a greed attracting consumer by showing a chance to win rewards, these rewards are ranging from electronic gadgets to travel vouchers, mostly they are subject to certain conditions, and often they are linked to performance metrics like sales targets or purchase volumes.
In the case before the Telangana AAR, company named “Apollo Tyres” had implemented a scheme under which dealers who were able to achieve a specified target of tyre purchases made them eligible for scratch cards. These cards offered them a chance to win pre-determined rewards as a performance-linked incentive to them, these scratch cards were to be distributed based on sales matrix.
Ruling by AAR
In this case, the Telangana AAR held that the scratch cards which were offered by “Apollo tyres” are not gifts, rather they were the form of consideration towards a supply, hence therefore these were taxable under GST. The AAR also said that these type of cards possess a “lottery-like” character and hence they are in the nature of an “actionable claim”, although they were not classified as such under the strict definition provided by the Transfer of Property Act, 1882.
This ruling concluded that the issuance of such scratch cards is a supply under Section 7 of the CGST Act, 2017 and does not fall under any of the exemption category. Consequently, GST is applicable on the distribution of these scratch cards.
What is the Legal aspect?
First of all, let’s discuss some of the important concepts through questions:
What is supply under Section 7 of CGST Act, 2017?
Section 7 of the CGST Act defines “supply” which include all forms of supply of goods or services for a consideration in the course or furtherance of business. Notably, certain activities listed in Schedule I are considered supply even without consideration (It is inclusive definition)
What are actionable claims?
Many times in this article I used this word, this is dealt by Section 2(1) of the CGST Act, stating that it is borrowed from the Transfer of Property Act, defined as a claim to any debt (other than a secured debt) or to any beneficial interest in movable property not in possession, recognized by the civil courts as affording grounds for relief. Here, Schedule III of the CGST Act, states that actionable claims (except lottery, betting and gambling) are excluded from the scope of GST.
What is Gift?
I want to tell you that, CGST Act does not define “gift,” but some of the judicial interpretations and general parlance define it as a voluntary transfer of property without consideration and out of natural love and affection. Gifts made to employees in excess of INR 50,000 per annum attract GST as per Schedule I
Now you might be thinking whether these promotional schemes shall be treated as a gift or a reward?
In above case, scratch card schemes raise several legal and ethical issues like “are they genuine gifts?” or “are they disguised reward mechanisms with speculative elements?”
In the case of Apollo Tyres, the scratch cards were not issued indiscriminately but were tied to achieving certain sales targets. This indicates a condition related to performance with the card. As a result, the reward was not gratuitous but had a “quid pro quo” character which means “something for something”.
Therefore, the issuance of a scratch card haven’t qualified as a gift under the general legal understanding. This forms the crux of the AAR’s reasoning to treat the same as a taxable supply under GST.
Now the question arises whether these scratch cards constitute actionable claims?
As I discussed with you, actionable claims are except under GST, hence in this ruling, the AAR have not labelled these scratch cards as actionable claims, but it emphasized their resemblance to lotteries, thereby drawing a parallel to gambling mechanisms. This interpretation came out with the uncertain outcome and the element of chance being associated with the cards.
Nevertheless, a stricter interpretation of “actionable claim” suggests that scratch cards do not fit neatly into this category. They do not offer a claim enforceable in a civil court unless the card explicitly guarantees a reward. Even then, their enforceability remains questionable unless governed by clear contractual terms.
Legal analysis and similar case laws:
Several judicial pronouncements shed a light on the interpretation of such promotional schemes, I am going to discuss two of them:
First one is Collector of Central Excise vs. Pepsi Foods Ltd. (2003)
In this case, the Supreme Court ruled that prizes offered in a promotional scheme (like “buy a bottle, win a prize”) formed part of the assessable value for excise duty. The promotional expense was seen as inseparable from the sale.
Second one is Premier Sales Promotion Pvt. Ltd. v. Union of India (2023)
The Madras High Court in this case observed that the mere issuance of pre-loaded gift cards or vouchers (without direct sale or recharge mechanism) is not a supply of goods or services, but rather an instrument of monetary value.
This case differed from the scratch card context, as scratch cards contain an element of uncertainty in terms of outcome, unlike vouchers which have a fixed monetary denomination.
Impact on business promotion practices
If scratch cards are deemed to be taxable supplies, businesses must revisit the compliance and valuation aspects of such schemes, and will go through issue like valuation challenges, stating the manner relating to valuing the supply made through a scratch card, and the the maximum value of the reward, or the average of prizes or the cost incurred by the supplier etc, hence it may lead to litigation.
If GST is paid on the reward procured and issued through a scratch card, can the business claim input tax credit, It depends on whether the reward is treated as used in the course or furtherance of business, or not, here Section 17(5) of the CGST Act disallows ITC on goods or services used for personal consumption, gifts, or free samples, except where used for making taxable outward supplies, this may create interpretational ambiguity.
If the reward is supplied to dealers across multiple states, businesses may have to consider place of supply implications, especially if the goods (reward items) move from one state to another, it will also become difficult for business owners.
Any other issues coming to your mind? You may feel free to comment below, till then let’s discuss the perspective or view point through consumer
The consumer perspective
From a standpoint of consumer protection, these promotional schemes which involve scratch cards may also attract scrutiny under the Consumer Protection Act, 2019. If the terms and conditions are not transparently disclosed, or if the scheme is misleading, it may be challenged as an unfair trade practice.
The Advertising Standards Council of India has also issued guidelines requiring companies to clearly specify the odds of winning, prize limits, and other conditions in promotional campaigns.
My recommendations for businesses or business owners
Keeping in mind legal complexities, the companies issuing scratch card or which are involved in the similar incentive schemes should make sure that terms are documented by clearly defining the rules, eligibility, prize structure, and disclaimers in the scheme documentation, next one is risk evaluation by undertaking a legal and tax risk assessment before launching any chance-based incentive scheme, by avoiding lottery-like features or luck elements without business-related qualifying criteria, keep tax treatment in mind or they may choose advance rulings.
Conclusion
Scratch cards as a promotional strategy straddle the line between incentive and gambling, gift and supply, and actionable claim. The recent Telangana AAR ruling reinforces the principle that taxability under GST depends not merely on nomenclature, but on substance and intent.
While marketing innovation is necessary in a competitive economy, it must be balanced with compliance prudence. Businesses should be mindful that what may appear as a simple promotional offer might have deeper legal and fiscal consequences.
As GST jurisprudence continues to evolve, such cases are likely to shape the contours of what qualifies as a “supply” and where the line is drawn between business promotion and speculative activity.
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Author can be contacted at aman.rajput@mail.ca.in
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