No GST Applicable On Supply Of Vouchers: Karnataka High Court

The bench of Justices P.S. Dinesh Kumar and T.G. Shivashankare Gowda remarked that vouchers, including Gift Vouchers and Cash Back Vouchers, are mere instruments accepted as consideration for supply of goods or services, which have no inherent value of their own.

The Court concluded that vouchers would fall under the definition of ‘money’, as defined under the CGST Act, which is excluded from the definition of goods and services under the CGST Act.

The petitioner/ assessee, M/s Premier Sales Promotion Pvt Ltd, procures Pre-paid Payment Instruments (PPIs), including Gift Vouchers, Cash Back Vouchers and E-Vouchers, from issuers and supplies them to its clients.

The assessee’s clients issue such vouchers to their employees in the form of incentives or to other beneficiaries under promotional schemes.

In an application filed by the assessee seeking advance ruling, the Karnataka Authority for Advance Ruling (AAR) ruled that the supply of said vouchers by the assessee is taxable as goods and the time of supply would be governed by Section 12(5) of the Central Goods and Services Tax Act, 2017 (CGST Act).

The assessee challenged AAR’s order before the Karnataka Appellate Authority for Advance Ruling (AAAR). The AAAR upheld the order passed by the AAR, against which the assessee filed a writ petition before the Karnataka High Court.

The assessee, Premier Sales Promotion, submitted before the High Court that ‘vouchers’ are recognised by the RBI as ‘payment instrument’ to be accepted as consideration or part consideration for supply of goods and services. It averred that the vouchers themselves cannot be treated as ‘goods or services’ for the purpose of levy of GST.

It further argued that actual supply of goods or services would take place only when the voucher is presented for redemption by a customer. Till the voucher is presented for redemption, it would remain an instrument, the assessee submitted

The assessee, Premier Sales Promotion, pleaded that the vouchers involved in the case are Pre-paid Payment Instruments (PPIs), which do not disclose the goods and services at the time of their issuance. Since the goods are not identifiable at the time of issuance of vouchers, as per Section 12(4)(b) of the CGST Act, the time of supply shall be their date of redemption.

The assessee added that till the time the voucher is presented for redemption, it would remain an actionable claim as defined in Section 2(1) of the CGST Act. Such actionable claim is neither a good nor a service, as defined in Schedule-III of the CGST Act, the assessee averred.

Referring to the facts of the case, the High Court took note that the assessee distributes vouchers to its clients, which are used by the client’s employees or customers, and which can be redeemed by them by availing goods and services. The bench concluded that the vouchers supplied by the assessee are semi-closed PPIs, and the goods or services to be redeemed are not identified in the vouchers at the time of their issuance.

“These PPIs do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banking Companies and they can be issued only with the prior approval of RBI,” the bench further observed.

Perusing the definition of "Voucher", as defined under Section 2(118) of the CGST Act, 2017, the Court said, “The definition of ‘vouchers’ as defined under the CGST Act, makes it clear that vouchers are mere instruments accepted as consideration for supply of goods or services. They have no inherent value of their own. As vouchers are considered as instruments, they would fall under the definition of ‘money’, defined under CGST Act. The CGST Act excludes ‘money’ from the definition of goods and service and therefore not leviable to tax.”

The bench reckoned that the Delhi High Court in Union of India vs. Delhi Chit Fund Association (2013) had ruled that no services are involved in the mere transaction of money or actionable claim, and therefore, no tax is leviable on the same.

It further took note that the AAAR, Tamil Nadu in Re: Kalyan Jewellers India (2021) had ruled that voucher per se is neither a good nor a service and it is only a means of payment of consideration.

Referring to the facts of the case, the bench noted, “In substance the transaction between the assessee and his clients is procurement of printed forms and their delivery. The printed forms are like currency. The value printed on the form can be transacted only at the time of redemption of the voucher and not at the time of delivery of vouchers to assessee’s client.”

Thus, the Court concluded that the issuance of vouchers is similar to pre-deposit and is not a supply of goods or services. Hence, the said vouchers are neither goods nor services and their supply would not attract GST, the Court said.

The Court thus allowed the writ petition and quashed the orders passed by the AAR and the AAAR.

Case Title: M/s Premier Sales Promotion Pvt Ltd versus Union of India & Ors.

Citation: 2023 LiveLaw (Kar) 53

Dated: 16.01.2023

Counsel for the Petitioner: Mr. G. Shivadass, Senior Advocate for Mr. M.S. Nagaraja, Advocate

Counsel for the Respondent: Mr. Jeevan J. Neeralgi, AGA and Standing Counsel

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