The use of gift vouchers or prepaid vouchers/cards in businesses has gained popularity, not only in B2C transactions but also in B2B transactions.

Voucher -Under GST Regime:

Section 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.

Some of the situations where gift vouchers are used can be –

Gift/Prepaid vouchers issued by stores such as Amazon, Shopper’s Stop, Pantaloons, etc., to their customers, i.e., B2C transaction,

Gift/Prepaid vouchers are issued by companies to their employees for redemption at grocery stores, restaurants etc., i.e., B2B transaction between voucher issuer and the company purchasing the vouchers,

Gift/Prepaid vouchers are given by companies to their dealers and franchisees by companies as incentive for achieving targets or on festive occasions etc., i.e., B2B transaction,

Gift/Prepaid vouchers are purchased by banks or fulfilment agencies for issuing to the bank or credit card customers for redemption of loyalty points, i.e., B2B transaction between voucher issuer and the bank/credit card/fulfilment company purchasing the vouchers.

Types of Gift/prepaid vouchers:

Broadly, we find two types of Gift/prepaid vouchers –

Gift/Prepaid vouchers that can be redeemed only against a specific product or service. In this article, we will refer to these kind of vouchers as ‘Specific vouchers. Examples of specific vouchers are gift vouchers that can be redeemed at an ice-cream store only for purchase of ice-cream, or a gift voucher entitling the holder membership at a gymnasium for a fixed period, and,

Gift/Prepaid vouchers that can be redeemed against multiple goods, or services or both. In this article, we will refer to these kind of vouchers as ‘General vouchers. Examples are, gift or prepaid vouchers issued by a hotel which can be redeemed against accommodation services or against restaurant or health club services etc., or voucher issued by a department store which can be redeemed against purchase of multiple products such as garments, footwear, electronics, cosmetics, etc.

In a judgment on Sodexo Coupons – 2015-TIOL-293-SC-MISC Hon’ble Supreme Court has overturned the judgment of Bombay High Court which had classified the coupons under the domain of goods inviting VAT and Local body tax (LBT). Apex Court has categorically decided that these so-called food vouchers for employees (which can also be used at some designated stores for buying of goods etc.,) are not ‘goods’ and hence they won’t invite VAT and LBT. Apex Court was also clear that these vouchers are merely “payment instruments” and not ‘goods’ and they become taxable only when they are redeemed.

However, in Contradiction to this judgement, it is seen from the above, that any property other than immovable property is a movable property. In this case, the customer purchases the Gift voucher and card by paying the issuer. Whoever produces the voucher at their stores, they will be allowed to redeem it. The voucher has both a value and an ownership and is the property of whoever first purchases it and later whoever redeems it, and it is movable. It is neither money nor actionable claim as discussed above. Hence, these gift vouchers/ cards issued by the applicant being ‘vouchers’ under the CGST Act are “Goods” as per Section 2(52) of CGST Act.

“Payment instrument” as defined in para 2(g) of the Payment and Settlement Act 2007 means any instrument, authorization or order in any form, including electronic means to affect a payment- by a person to a system participant or by a system participant to another system participant. The system participant includes the issuer.

The gift voucher/ gift card is an instrument squarely covered under the definition of “payment instrument” under Payment and Settlement Act 2007. It is not a claim to a debt, nor does it give a beneficial interest in any movable property to the bearer of the instrument. In fact, if the holder of the gift card/ voucher loses or misplaces it and is unable to produce it before the applicants stores before the time limit specified on the card/ voucher, the instrument itself becomes invalid. Then the customer cannot use it to pay for any goods. Thus, it is not an actionable claim as defined under Transfer of Property Act. It is only an instrument accepted as consideration / part consideration while purchasing the goods from the issuer and the identity of the supplier is established in the PPI.

PPI is an actionable claim under Transfer of Property Act where Civil courts recognize these as per the above Act.; They sell Own PPIs at retail store and online and are redeemed at face-value and has a time value for redeeming.; It is not goods or services.; Hon’ble Supreme Court in Sodexo Vs. Maharashtra = 2015 (12) TMI 1041 – SUPREME COURT, held that they are not goods. Even the accounting was substantiating this fact that they booked liability at the time of issuance of gift card and booked sales only when redemption was done by customer.

The CCT Gujarat clarified that if vouchers were given for use in a grocery store, the point of supply of goods shall be fixed through this provision. The Secretary suggested to define the term ‘voucher’ in the Definitions section. The Council agreed to define the term ‘voucher’ in the Definitions section13(XVIII). Section 12(4) (Time of supply of goods): To define the term ‘voucher’ in the Definition section. Time of supply of Gift/Prepaid Vouchers:  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 is amply clear that those instruments which satisfy the conditions of being accepted as consideration/ part consideration against purchase of specified goods and the identities of the potential suppliers are indicated in the instruments are to be considered as Vouchers for the purposes of GST. Applying the above, the PPIs under consideration are ‘Vouchers’ for the purposes of GST.

In case of Kalyan Jewellers India Limited (GST AAAR Tamilnadu) Pronounced decision on this lacuna along with following findings:

Voucher, being an instrument used as consideration to settle an application, is a type of money, and if such instrument is recognised by the Reserve Bank of India. Even if such voucher is not recognised by Reserve Bank of India, it would still form a means of payment of consideration, though it does not constitute money under the above definition.

When a voucher is issued, though it is just a means of advance payment of consideration for a future supply, sub-section (4) of section 12 and 13 determine the time of supply of the of the underlying good(s) or service(s). Voucher per se is neither a goods not a service. It is a means for payment of consideration. Therefore, there is no need to determine whether voucher is an actionable claim to arrive at a conclusion that it is neither a goods nor a service.

It therefore follows that where a voucher identifies the goods or service that can be received on redeeming, the supply of the underlying goods or service takes place at the time of issue of the voucher.

In Case of Kalyan Jewellers India Limited, Since the gold voucher clearly indicates that the voucher can be redeemed for gold jewellery at a known rate of tax, gold voucher also falls under this category. Therefore, it is our view that the gold voucher (representing the underlying future supply of gold jewellery) would be taxable at the time of issue of the voucher. It must be emphasised that this interpretation does not result in double taxation as transfer of gold subsequently will not be subject to tax at the time of redeeming the voucher for gold, as the supply is deemed to have been done at the time of issue of voucher itself (section 12(4)).

Thus, the AAAR ruling stated that” The time of supply of the gift vouchers / gift cards by Kalyan Jewellers to the customers shall be the date of issue of such vouchers and the applicable rate of tax is that applicable to that of the goods.”

This brings clarity that Voucher which recognized as an instrument of consideration (non-monetary form) for future supply. 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 the goods or services supplied in exchange of the voucher earlier issued to the customer.

This AAAR Ruling can bring clarity on Membership gift cards issued by brands for giving loyalty benefits to the customers in form of Gift Cards.

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June 2021