Time of Supply and Taxability of Vouchers under GST

CA. Rajender Arora

In the era of innovative marketing, vouchers and coupons are indispensable. There is hardly any industry that does not promote their goods and/or services with the help of vouchers and coupons. Such extensive use of vouchers has raised an important question for the taxpayers – the applicability of GST thereon!

Now the question arises that whether the issuance or redemption of vouchers constitutes as 'supply' as per section 7 of the CGST Act, 2017?

As per Section 2(118) of the CGST Act, 2017 voucher is "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".

Following are the factors to determine whether the instrument is a voucher or not:

  1. Legal obligation to accept as consideration for the supply of goods or services to be affected in future;

  2. Legal obligation is created under a contractual agreement. “Vouchers are, by its nature, no more than a document evidencing the obligation assumed by the supplier to accept the voucher, instead of money, at its face value”.

  3. Discounts are offered till the voucher changes hands and finally, redemption is at the face value.

Once it is identified instrument is voucher, it is divided either Single-purpose vouchers (SPV) i.e., vouchers at the time of whose the related supply, supply to be provided upon redemption is identifiable or Multi-purpose vouchers (MPV) i.e., vouchers at the time of whose supply, the related supply to be provided is not identifiable.

Once it is identified instrument is voucher, it is divided either Single-purpose vouchers (SPV) i.e., those vouchers, whose supply to be provided upon redemption is identifiable or Multi-purpose vouchers (MPV) i.e., those vouchers, whose supply to be provided upon redemption is not identifiable.

Thus, the time of supply provisions as given u/s 12 and 13 of the Act have prescribed the time of supply in case of vouchers as:

  • the date of issue of voucher, if the supply is identifiable at that point;

  • the date of redemption of voucher, in all other cases.

Rule 32(6) of the CGST Rules, 2017 states that 'the value of a token, or a voucher, or a coupon, or a stamp (other than a postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.'

Vouchers in the form of Pre-paid Payment Instruments (“PPIs”) is ‘Money’ and thus not chargeable to GST:

Besides the above, vouchers can be divided into two categories on the basis of their money value - vouchers that are in the nature of Prepaid Payment Instruments (PPI) and those that are not in the nature of PPIs. The PPI category of vouchers has a certain value of money stored in them while the non-PPI categories do not have such a feature (though they are obligated to be accepted as consideration).

Considering that vouchers could be money or actionable claims, it may neither constitute as goods nor as services. Therefore, a conclusion could be drawn that the supply of vouchers per se would not constitute as 'supply' in terms of Section 7 of the CGST Act, 2017.

Let us understand it by the Advance Ruling

In a recent advance ruling pronounced in the case of M/s Kalyan Jewelers India Ltd (127 taxmann.com 37 (AAAR - TAMILNADU) [30-03-2021], the Tamil Nadu Authority for Advance Ruling (TN AAR) held the vouchers to be a supply of goods while classifying paper-based gift vouchers under CTH 4911 liable to 12% GST and cards with a magnetic strip or a chipset under CTH 8523 liable to 18% GST. Aggrieved by the ruling, the applicant appealed before the Appellate Authority for Advance Ruling (AAAR). Brief facts and observations of the ruling are given below:

Facts:

  • The business of the appellant is manufacturing and trading of jewellery products.

  • As a part of their sales promotion scheme, the appellant introduced different types of PPIs which are called as gift vouchers/ gift cards in trade parlance. These vouchers can be redeemed against any jewellery products available at the appellant's store.

  • The appellant sought advance ruling to understand the taxability of issuance of such vouchers by themselves or by third parties.

  • The appellant argued that vouchers are actionable claims and are thus covered under Schedule III of the CGST Act, 2017. Hence, such issuance of vouchers is outside the ambit of GST.

  • It is submitted that if the PPI's are made liable to tax, it would amount to double taxation as GST is levied on the supply of jewellery made by the appellant also at the time of redemption of a voucher is against the provisions of Law as well as the EU Council Directives.

Held:

The AAAR delved into the legal provisions and noted the following:

  • Section 12 and Section 13 of the Act deals with time of supply of issuance of voucher. Therefore, vouchers can relate to both goods and services. The AAAR did not agree with the contention of the appellant that vouchers are actionable claims because in that case, they can only be goods and not services. The AAAR is also of the view that if vouchers are actionable claims because in that case, they can only be goods and not services.

  • 7.3 Our view is that there is an inherent contradiction in this argument, with the provision in sub sections (4) of section 12 and 13, that deal with determining the time of supply for goods and services respectively, both use the term 'voucher', and therefore indicate that voucher relate to both goods and services. If vouchers are to be treated as actionable claims, they are only goods and not services.

  • However, vouchers are neither goods, nor services. A voucher is a means for advance payment of consideration against supply of goods and/or services.

  • The time of supply provisions mentioned in subsection (4) of section 12 and 13 prescribe the time of supply of vouchers as the date of issue of vouchers, if supply is identifiable at that point in time at the time of issuance of voucher. In all other cases, time of supply shall be the date of redemption of voucher.

  • The AAAR concluded that voucher is only a means for advance payment for future supply. Thus, it is neither goods, nor services. Moreover, if the supply can be identified at the time of issuance of voucher, the underlying supply of such goods and/or services shall be deemed to be taking place on the date of issuance of such voucher. 

  • In the present case, since the supply is known to be gold jewellery on the date of issuance of voucher, GST would be levied on the date of issuance of voucher at the rate as applicable to gold jewellery. When the voucher is redeemed, there would be no tax implication.

  • Voucher is only a means of payment and not a supply in itself. The supply would be the underlying goods and/or services for which vouchers are issued.

  • This interpretation would also avoid any double taxation i.e., taxing both issuance of voucher earlier and supply of goods and/or services at a later point in time.

Thus the AAAR stated in its order that vouchers are neither goods nor services and that the GST law recognizes them as a kind of non-monetary consideration for future supply. “Since a voucher is just an instrument of consideration and not a product or service, it cannot be classified separately. Only the supply associated with the voucher can be classified based on the quality of the products or services provided in return for the voucher previously given to the consumer.”

Conclusion

There is a wide variety of vouchers that are used by business entities in furtherance of their opportunities. As evident from the above discussion, vouchers could be divided and subdivided almost endlessly based on various characteristics. The ideal approach would be to deal with one crisis at a time i.e., to restrict the approach to identifying the nature of the particular type of instrument in the given scenario and to not give in to the urge of sealing the vault once and for all.

DISCLAIMER: This publication is merely a general guide meant for knowledge purposes only. All the references or content are for educational purposes only and do not constitute a legal advice. We do not accept any liabilities whatsoever for any losses caused directly or indirectly by the use/reliance of any information or conclusion contained in this publication. Prior to acting upon this publication, you're suggested to seek the advice. This work is entirely in the interest of profession and to contribute into my beloved subject of GST.

The author can be reached at gstwebinars@gmail.com

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