Vouchers are Taxable as a Supply of Goods at the rate of 18%

The Authority for Advance Ruling, Uttar Pradesh, in case of M/s Payline Technology Private Limited, In Re [Ruling No. UP ADRG 43 of 2024 dated February 20,2024] ruled that Supply of Vouchers by the Applicant is taxable as supply of goods and the time of supply shall be decided as per Section 12 (2) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and the Uttar Pradesh Goods and Service Tax Act,2017 ("the UPGST Act") and will be taxed at the rate of % CGST and 9% UPGST as per residual entry no. 453 of Third Schedule of Notification No. 01/2017-Central Tax (Rate) dated June 28, 2017. Further, the value of supply shall be decided as per sub-sections (1), (2) and (3) of Section 15 of the CGST Act.

Facts:

M/s Payline Technology Private Limited ("the Applicant") was engaged in the business of selling and purchasing the gift cards, vouchers and pre- paid vouchers (closed or semi-closed-ended vouchers against which goods or services can be purchased from specific brands on e-commerce platforms such as Amazon, Flipkart etc.) These vouchers are purchased by the Applicant against the advance payment.

Then vouchers are purchased by the vendors at a discounted price. Subsequently, these vouchers are supplied to the clients as per the order placed. Once, these orders are purchased by the Applicant from the original Issuers, the Applicant becomes the absolute owner of these vouchers, and both risk and reward lie with the Applicant.

The Applicant contented that, the voucher is only a mean for the advance payment of future purchases of goods and services. Neither supply of goods nor supply of services emanate at the time of transfer of vouchers from one hand to another, at the time of the redemption of such vouchers the GST is payable on the full value of the voucher by making supply of goods/ services against payment through these vouchers.

The vouchers are purchased after paying the consideration to the Issuers then they are sold to the clients of the Applicant for a consideration. Moreover, vouchers have both value of an ownership, which is transferred by the issuer of theses vouchers to the Applicant and then to the ultimate beneficiary who redeems voucher. These vouchers are freely transferable as no element of service is involved between the issuer of the voucher and the Applicant and between the Applicant and purchaser. Therefore, vouchers qualify to be considered as movable property and goods. Further, the vouchers cannot be treated as money. Hence, the tax liability cannot arise at the time of sale vouchers by the Applicant.

Therefore, the Applicant seeks for advance ruling on taxability of the supply of vouchers.

Issue:

Whether the vouchers or the act of supplying the vouchers is taxable?

Held:

The AAR, Uttar Pradesh in Ruling No. UP ADRG 43 of 2024 held as under:

· Observed that, the Applicant purchases three types of vouchers: (I) Gift voucher, (II) Vouchers and (III) Pre-paid vouchers. These vouchers are purchased by the Applicant from entities on payment of a consideration and the vouchers are sold to their clients for a consideration. The Applicant is neither the issuing person nor the actual user of these vouchers.

· Noted that, vouchers cannot be treated as money. Money is defined under Section 2(75) of the CGST Act. Money has been excluded from the terms "goods" as well as "services", which is primarily used to settle an obligation or exchange wish Indian legal tender of another denomination. However, these vouchers are not used by the Applicant to settle an obligation and hence cannot be considered as "money". The Applicant is merely a trader of these vouchers, which are not used to settle an obligation. These vouchers could be termed as money only when it is redeemed by the beneficiary at the time of purchase of goods and/or services. The settlement of the obligation occurs at the time when the ultimate beneficiary uses the voucher to purchase goods and/or services.

· Opined that, the vouchers are in the nature of actionable claims. As per the definition provided in section 2(52) of the CGST Act, goods includes actionable claims. As per Sl. No. 6 of Schedule III of the CGST Act, actionable claims other than lottery, betting and gambling as being neither a supply of goods nor a supply of services. Therefore, only lottery, betting and gambling shall be treated as actionable claims which are goods under GST. All other actionable claims shall not be treated as either goods or services. Section 2(1) of the CGST Act states that actionable claim shall have the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882.

· Held that:

(1) Vouchers as Movable Property and Goods: The vouchers purchased by the Applicant are considered movable property and thus qualify as goods. The vouchers have both value and ownership, which is transferred from the issuer to the Applicant and then to the ultimate beneficiary who redeems them.

(2) No Element of Service: There is no element of service between the issuer of the vouchers and the Applicant, nor between the Applicant and the purchaser. The transaction is purely for the transfer of goods (vouchers).

(3) Actionable Claims: As per Sl. No. 6 of Schedule III of the CGST Act, actionable claims (except lottery, betting, and gambling) are neither considered goods nor services. The trading of vouchers by the Applicant is considered the supply of goods, not services, even though actionable claims are generally excluded.

(4) Supply of Goods: The sale of vouchers involves the transfer of title in goods, qualifying the transaction as the supply of goods under Section 7(1)(a) of the CGST Act 2017. Para 1(a) of Schedule II also specifies that the transfer of title in goods is considered a supply of goods.

(5) Taxability: The vouchers in this case are taxable under the residual entry No. 453 of the Third Schedule of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 at the rate of 9% CGST and 9% UPGST.

Our Comments:

The ruling clarifies that the sale of vouchers is treated as the supply of goods under GST, as it involves the transfer of ownership and value without any associated service element. Despite actionable claims generally being outside the purview of GST, the vouchers in question qualify as goods since they are freely transferable and sold for consideration. Consequently, the transaction is taxable at a combined rate of 18% under the residual entry of the GST notification. This decision highlights the applicability of GST to voucher sales, reinforcing that they are subject to tax as goods rather than services.

However, this finding by the AAR is contrary to the binding precedent laid down by the Hon'ble Supreme Court in Sodexo Svc India Pvt Ltd vs State of Maharashtra reported in 2015 (16) SCC 479, wherein it was held that vouchers are not goods. A similar view was also taken by the Tamil Nadu Appellate Authority for Advance Ruling in Kalyan Jewellers India Ltd., In re [2021 (50) G. S. T. L. 96 (App. A. A. R. - GST - T. N.)], wherein it was opined that vouchers could not be classified into goods or services as they are only instruments of consideration and it is only the underlying goods or services which will be leviable to GST. Lastly, in Premier Sales Promotion Pvt. Ltd. v. Union of India [2022 (59) G. S. T. L. 183 (App. A. A. R. - GST - Kar.)], the Hon'ble Karnataka High Court once again affirmed that vouchers do not constitute a supply of goods or services and they are merely pre-deposit for the purchase of goods or services.

Relevant Provisions:

Section 2(118) of CGST Act

"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".

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