Article discusses Taxability under GST on various promotional instruments like gift vouchers, coupons, cards etc. as to what are the nature of the same and what will be the tax implications on the same.
Some of the instruments are defined as follows:
Voucher in terms of clause (118) of Section 2 of CGST Act 2017 has been defined as follows:
“” 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.”
In simple words, voucher is any instrument that can be used as a consideration for procuring any goods or services, containing its own terms and conditions for being used as such.
Coupon, not being defined in any provision of the act in any law for the time being in force can be understood from its following general definition:
“Coupon is a voucher entitling the holder to a discount off a particular product or service”
Taxability and Legal Provisions
Let us now examine the taxability on the vouchers and coupons issued to various types of customers and the legal provisions thereon:
Section 15 of the CGST Act provides the following information in relation to the valuation of supply:
15(1) The value of a supply of goods or services or both shall be the transaction value which is the price actually paid or payable for the said supply of goods or services or both where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply.
(2) The value of supply shall include–––
1. any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
2. any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
3. incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
4. interest or late fee or penalty for delayed payment of any consideration for any supply; and
5. subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments
(3) The value of the supply shall not include any discount which is given –
1. before or at the time of supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
2. after the supply has been effected, if-
3. such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
4. input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply
Rule 36(2) specifically prescribes the valuation of vouchers, coupons and such related instruments in the following quoted text:
36(2) “The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or service or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon or stamp”
Referring the above quoted text of the law, question arises as to what will be the taxability when such instruments are being supplied by the seller to its various class of customers who may or may not be the ultimate consumer of the said product. While some of the instruments may be purchased for self-utilisation (herein referred to as consumer), while others may be purchased by the customer in order to provide the same as perquisite, for the purpose of reselling, or as a part of agreement.
Following are the detailed analysis of each type of transaction in relation to the said instruments:
It is quite a common practice now a day that company is offering to their consumers a shopping vouchers at a price less than the amount of benefits arising from the said instrument. For Example, Shopper Stop voucher of INR 500/- is available in the market for INR 450/-.
Issue arises as to what will be the taxability of such instruments wherein the consideration paid to acquire the said voucher is INR 450/- but the benefit from the said instrument is of INR 500/-.
Rule 36(2) as specified above deals appropriately with the same type of transactions and in terms of the text quoted taxable value shall be INR 500/- even though the money paid to acquire such instrument in INR 450 only since the provision says “the money value of goods or services or both redeemable against such voucher” and basis the same understanding taxable value shall become INR 500 and relevant taxes shall be calculated keeping in view the said value.
Another common practice is that the companies have come into an arrangement of buying a pre-printed meal vouchers which are given a specific nomenclature, wherein some are distributed by the companies to its employees. For utilisation of such vouchers, employees have to go to certain affiliated stores wherein the facility of accepting such vouchers are there. The same are then redeemed in terms of the value specified on the said voucher and the affiliated companies then present the vouchers to the voucher-issuer company and post verification, consideration is granted to the affiliated stores by the voucher-issuer company after deducting certain service charges for facilitating the supply from their stores.
Herein the taxability is to be determined for various legs of transactions:
It is a common practice that coupons purchased by the employer from the issuer company is of certain less price as stipulated on the said voucher i.e. voucher worth INR 500 is being sold at INR 400 to the employer.
The above scenario will be taxed the same as taxed in Scenario 1 discussed above and the taxable value shall amount to be INR 500/- and the same shall accordingly be taxed at appropriate rates.
Vouchers to be provided to employees by employer shall stand out of the preview of GST since the same do not qualifies to be a supply in terms of Entry 1 of Schedule III of the CGST Act stating the services by employee to employer in the course of or in relation to employment to be treated neither as supply of goods nor as supply of service. Entry 1 of the said schedule is stated as:
“Services by an employee to the employer in the course of or in relation to his employment”
Hence if such provision of voucher is well stated in the employment contract, and shall be a consideration for supply of services by an employee to the employer in the course of or in relation to the employment of such employee, then such supply of voucher shall stand out of the scope of supply as referred to in Section 7 of the CGST Act 2017 read with Schedule III appended to the said Act irrespective of the amount of transaction
Another question arises as to what will be the tax implication if there is no such agreement between the employer and employee.
In absence of a valid contract between the two parties the same shall be considered as a supply if the transaction value exceeds INR 50000/- in a financial year by the employer to employee as gift. This is because the same transaction in absence of contract falls within the ambit of Schedule II of the CGST Act which specifies the transactions that will be treated as supply even if made without a consideration.
Proviso to Entry 2 of the said schedule states that “gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both”
Hence if the value of the vouchers in absence of an employment contract exceeds INR 50000/- the same shall be considered as supply by the employer and hence shall accordingly be taxed.
ITC in the first case shall stand restricted to the employer wherein there was a valid employment agreement since the same shall fall under S.17(5) of the CGST Act which restricts ITC in respect of following items:
1. food and beverages, except when are used in same line of business (in case of food coupons)
2. goods or services or both used for personal consumption (in case of any other coupon)
Therefore, ITC shall not be available in first case while the same shall become eligible in the second one wherein the transaction is deemed as a supply as the employer falls under the exception of S.17(5) i.e. he will then become a person under same line of business as supplying food coupons or of similar nature by whatever name called provided the same exceeds the amount specified as per Schedule I otherwise the same if up to INR 50000/- shall also stand restricted to the employer.
When such vouchers are being redeemed by the employees, the said coupons are duly verified and consideration in terms of the amount written on the said vouchers shall be deemed to be received by the affiliated stores and customer is granted/provided the goods or services asked by him in lieu of the said voucher.
After the successful transaction, the coupons are then forwarded to the coupon issuer company which then post verification issues the monetary consideration to the affiliated company after deducting certain service charges as a fee for boosting the sales. It is important to note that such deduction of the affiliated company is of independent nature and cannot be linked with the earlier two transactions. The amount deducted is a separate leg of transaction and will accordingly be liable to be taxed at appropriate rates and the latter will be allowed input tax credit post fulfilment of the conditions as prescribed under S.16 of the CGST Act.
It is often misunderstood by many persons that the above said transaction is being taxed doubled i.e. first being taxed fully at the time of sale to Employer and second at the time of reimbursement to the affiliated company in relation to the vouchers.
Affiliated company being charged certain fee by the voucher issuer company is in the nature of support service or commission by whatever name called i.e. a medium of boosting the sales of the company for which a certain amount of total sales made through their voucher is being deducted by the former.
Banks and other entities engaged in similar nature of businesses have developed a common practice of providing their users reward points for the transactions made through their cards which subsequently can be redeemed for buying various vouchers of outlets like Shopper Stop, LP, etc.
The question that arises in the above scenario as to what will be the tax implication at the time of redemption of such instrument in the hands of consumer and what will be the treatment at the time of purchase from the said instrument.
At the time of redemption, it is a common practice that bank charges a certain amount of charges in the name of redemption money which comprises of the tax component and a certain margin on the said instrument. This indicates that the bank also charges the tax on the redemption value of the said instrument which is recovered from the customer at the time of redemption from the reward points and the same is subsequently deposited with the government.
Further at the time of redemption of the same from the affiliated stores such amount as stipulated in the voucher does not attract any chargeability of tax and the same is deemed to be inclusive of tax and the treatment is done accordingly.