Karnataka HC: Vouchers Are Neither Goods Nor Services Under GST

Premier Sales Promotion Pvt. Ltd. (applicant) is procuring and supplying Prepaid Payment Instruments (PPI) such as gift vouchers, e-vouchers and cashback vouchers from the issuers. The applicant’s client issues vouchers to their employees as incentives or to other beneficiaries under promotional schemes.

On 23rd February 2021, the applicant approached the Karnataka Authority for Advance Ruling (AAR) seeking whether 

• Are the PPIs, vouchers, or supplying them taxable under Goods and Services Tax (GST)? and at what stage should the tax be charged?
• Also, if the transactions were liable to tax, under which category and what would the tax rate be applicable?

On 30th July 2021, the AAR ruled that the voucher supply is taxable as goods. The time of supply in these cases is governed by Section 12(5) of the Central GST Act. Also, the GST rate is applicable as per entry No. 453 of Schedule 3. After the above ruling, the applicant challenged the AAR order before Karnataka Appellate Authority for Advance Ruling (AAAR). Even the AAAR upheld the AAR order.

The applicant felt aggrieved and presented a writ petition before the High Court of Karnataka stating below contentions:

• The RBI issued a master direction on the issuance and operation of PPIs, stating that the PPIs are for purchasing goods and services.
• The vouchers, in this case, do not disclose the goods and services when issued.
• The time of supply shall be the redemption date as per Section 12(4)(b) of the CGST Act, as the goods are not identifiable at the time of issuance.
• The voucher would remain only as an instrument until it is used for discharging obligation towards the supply of goods or services.
• The voucher can be considered an actionable claim until it is presented for redemption.
• Hence, such an actionable claim is not considered goods or services as mentioned in Schedule III of the CGST Act.
• The actual supply is done when the voucher is redeemed unless when the voucher identifies the goods or services.
• The voucher would remain as an instrument till the time of redemption.
• Hence, the impugned Order passed by the Advance Ruling Authority is contrary to the law.

The department counters that the applicant knows what is offered to the customer, and they can’t be held that goods are not identifiable. 

The HC stated that 

• Vouchers are distributed to employees or customers and then redeemed.
• Also, these PPIs do not permit cash withdrawals, irrespective of whether banks or non-banking Companies issue them, and they are issued with the prior approval of RBI.
• In substance, the transaction between the applicant and his clients is the procurement of printed forms and their delivery.
• The value printed on the voucher can be transacted only at the redemption time and not at the delivery time.
• Accordingly, the issuance of vouchers is similar to pre-deposit and not the supply of goods or services.
• Hence, vouchers are neither goods nor services under GST and cannot be taxed.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@clear.in