The best word in the world is “Free” and a close second is “Discount”. We, as consumers, have become used to purchasing goods or availing services at a discount because everyone likes to feel like they have saved money and have gotten the better end of the deal. I am sure that you remember the last time you got 10% off on popcorn on an online booking of a ticket and felt like a winner. Earlier discounts meant that there is 50% off and you can go and purchase the article for Rs. 500/- at Rs. 250/-. But, I am sure you would agree, these days the sellers have become creative and have started providing discounts in the form of Gift Cards/ Vouchers. These vouchers are provided not only by the supplier of the underlying product or service but also by third-party traders. Here, an interesting question arises to if the vouchers are traded, will the parties become a part of a taxable transaction under the GST regime? Further, is it more beneficial for the seller of the goods to provide vouchers directly to the consumer instead of a third party? This article aims to answer such questions, in the light of various authorities on the subject.
What are Vouchers as per GST?
Before coming to the taxability of GST, let’s understand what a gift card/ voucher is? While there is no definition of a gift card under the GST Act, vouchers have been dealt with under the Central Goods and Service Tax Act, 2017 (“CGST Act”). A voucher is defined under Section 2(118) of the CGST Act as follows: –
“Voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for the supply of goods or services or both and where the goods or services or both 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 for use of such instruments.
From the above definition, it is clear that a voucher has two essential features. These are: –
a) It must be an instrument where it is an obligation to accept it as a consideration or a part of consideration towards supply.
b) Either the supply or the suppliers must be indicated in the instrument or the related documents.
Thus, a voucher is provided by the customer to attain the underlying goods/ services. One might think that the functions so performed by vouchers are that of money and money itself is out of the purview of the CGST Act by the virtue of Section 2(52) (meaning of goods) and Section 2(102) (meaning of services) of the CGST Act as money is neither a good nor a service. However, that is not correct. Money is defined under Section 2(75) of the CGST Act as: –
“Money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic remittance, or any other instrument recognized by the Reserve Bank of India when used in consideration to settle an obligation or exchange with Indian legal tender or another denomination but shall not include any currency that is held for its numismatic value.
Thus, we can see that a pre-paid instrument like a voucher is not included in the definition of money under the CGST Act and therefore, voucher is not money and is not outside the purview of the CGST Act.
Is a Voucher a supply?
The next question that arises is whether a voucher a supply within the purview of GST. As per Section 7 of the CGST Act, a supply means a supply of goods or services or both. The term “goods” has been defined under Section 2(52) as-
“goods” means every kind of moveable property other than money and securities but includes actionable claims, growing crops, grass, and things attached to or forming a part of the land which are agreed to be severed before supply or under the contract of supply.
“Services” have been defined under Section 2(102) as-
“services” means anything other than goods, money, and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency, or denomination, to another form, currency, or denomination for which a separate consideration is charged;
Explanation.- For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities;
If we read the definition of Goods, services as well as vouchers as stated above, we can see that the parliament has not categorically stated what will the voucher be.
However, w.r.t. time of supply of goods (Section 12) and services (Section 13), vouchers have been dealt with as a separate class.
“Section 12. Time of Supply of Goods-
…(4) In case of a 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….”
Further Section 13 states that-
“Section 13. Time of Supply of Services-
…(4) In case of a 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….”
Therefore, the parliament was of the intent that a voucher can be either a good or a service but not either as it will constitute a supply.
Voucher as a Supply
A Voucher may be used in two ways
(1) Where the voucher is used by the final consumer for purchase of underlying good/ service.
OR
(2) Where the vouchers are traded by an entity to earn profit.
CASE (1): Where the vouchers are used by the final consumer
In this scenario, the consumer will simply present the voucher to the seller for the supply of underlying goods/ services but it cannot be said that the consumer is making a supply to the such shopkeeper as it is not in the course or furtherance of business.
The Supreme Court in the case of Sodexo SVC India (P) Ltd v. State of Maharashtra, [2015] 64 taxmann.com 396 has held that vouchers are not goods; that transactions of trading in vouchers are 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. It was concluded by the Apex Court that the Sodexo coupons are provided by the employer to the employees to avail the facility of food and non-alcoholic beverages. It was held that a prerequisite given to the employees by adopting the methodology of vouchers and therefore, cannot be treated as goods for levy of local body tax and octroi gave the fact that their vouchers were not traded or sold separately-
“25. We may mention here that the appropriate test would be as to whether such vouchers can be traded and sold separately. The answer is the negative. Therefore, this test of ascertaining the same to be “goods” is not satisfied.”
Therefore, the Supreme Court has held that vouchers as long as used by a person to avail the underlying goods or services, are neither goods nor services and therefore, not taxable.
CASE (2) Where the vouchers are traded by an entity to earn profit
In this regard, the observation of the AAAR, Karnataka in the case of Premier Sales Promotion (P) Ltd, In re, [2022] 134 taxmann.com 73 (AAAR- Karnataka) become relevant wherein it was held that a voucher when supplied by a third party and not be the issuer of the voucher himself becomes a good in the hands of such third person. Such a voucher will take a shape of a pre-paid instrument only when the same is used to make payment by the end consumer and not before that and therefore, GST will be leviable on the trade of such voucher. However, this was a case where the underlying supply was also good. What if the underlying commodity is a service?
In this regard, the case of Kalyan Jewellers India Ltd., In re. [2021] 27 taxmann.com 37, becomes relevant where the Tamil Nadu AAAR held that since a voucher is 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.
Therefore, it can be concluded that a voucher is taxable when it is traded and whether a voucher is a good or service depends on the underlying supply.
RATE OF GST ON TRADE OF VOUCHERS
Now that we have established that a voucher is taxable under GST when traded by a non-issuing third party, the next question that comes is what is the rate of tax on vouchers? Since vouchers are not listed in Notification No. 01-2017- Central Tax (R), dated 28.06.2017, they will be taxable under the residue head under Entry No. 453 of Schedule III of Notification No. 01-2017- Central Tax (R), dated 28.06.2017 at the rate of 18%.
CONCLUSION
From the above discussion, it can be concluded that when a voucher or a gift card is issued to you by let’s say Amazon, you will not be liable to pay any GST on the voucher itself but only the underlying good or service. However, where the voucher is traded by a third party, the transactions become taxable under GST and all the compliances in this regard will follow.
Author Bio
Well Written Article