GST: Vouchers neither goods nor services; cannot be taxed; Says HC

Briefly stated the facts of the case are, assessee is a registered Company engaged in the transactions of procuring Pre-paid Payment Instruments of Gift Vouchers, Cash Back Vouchers and E-Vouchers from the issuers and supplying them to its clients for specified face value. Its clients issue such Vouchers to their employees in the form of incentive or to other beneficiaries under promotional schemes for use as consideration for purchase of goods or services or both as specified therein.

Assessee submitted an application dated February 23, 2021 before the Karnataka Authority for Advance Ruling, for a Ruling whether the Pre-paid Payment Instruments or vouchers themselves, or the act of supplying them is taxable, and at what stage, for each of the three categories of transactions undertaken by the assessee and if the transaction were liable to tax, under which category and what would be the rate of tax applicable?

The Advance Ruling Authority, vide Order dated July 30, 2021 has ruled that the supply of vouchers is taxable as goods and the time of supply in all the three cases would be governed by Section 12(5) of the Central Goods and Services Tax Act, 20175 and the rate of GST as per Entry No. 453 of Schedule 3 of Notification No. 1/2017- Central Tax(Rate) dated June 28, 2017. The assessee challenged the said order before Karnataka Appellate Authority for Advance ruling. The Appellate Authority has affirmed the order passed by the Advance Ruling Authority. Feeling aggrieved, the assessee has presented this writ petition.

Contention of Assessee:

Shri. G. Shivadass, learned Senior Advocate for the assessee submitted that:

The RBI has issued a master direction8 on issuance and operation of PPIs. Para 9.1(i)(g) of the direction specifically recognizes the PPIs for the purchase of goods and services. The vouchers involved in this case are PPIs which do not disclose the goods and services at the time of issuance;

• since the goods are not identifiable at the time of issuance, as per Section 12(4)(b) of the CGST Act, 2017, the time of supply shall be the date of redemption;
• the voucher would remain only as an instrument till such time it is used for discharging obligation towards the supply of goods or services. At best voucher can be considered as an actionable claim defined in Section 2(1) of the CGST Act till it is presented for redemption. Such actionable claim is neither goods nor services as defined in Schedule III of the CGST Act;
• actual supply of goods or services takes place only when the voucher is presented for redemption by a customer to a supply of goods and services except when the voucher itself identifies the goods or services for the value mentioned in the voucher. The voucher would remain to be an instrument till the time of redemption. Therefore, the impugned Order passed by the Advance Ruling Authority is contrary to law.

Contention of Department

Shri. Jeevan J. Neeralgi, learned AGA for the Revenue opposing the writ petition submitted that the assessee would be knowing precisely what is offered to the customer. Therefore, it cannot be held that goods are not identifiable. With regard to the authority in M/s. Kalyan Jewellers India, he submitted that the parties involved in that case were Kalyan Jewellers and his customers. Therefore, on facts, the principle is not applicable to the case on hand.

Order of HC:

21. It is not in dispute that the vouchers involved in the instant petition are semi-closed PPIs in which the goods or services to be redeemed are not identified at the time of issuance. Vouchers are distributed to its employees or the customers which can be redeemed by them. 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.

22. 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. Therefore, the issuance of vouchers is similar to pre-deposit and not supply of goods or services. Hence, vouchers are neither goods nor services and therefore cannot be taxed.

23. In view of the above discussion, this writ petition merits consideration. Hence the following:

ORDER

(a) Writ petition is allowed.

(b) Order dated December 22, 2021 passed by The Karnataka Authority for Advance Ruling and the order no. KAR/AAAR/11/2021-22 dated December 22, 2021 passed by the Appellate Authority affirming the order passed by the Advance Ruling Authority are quashed holding that vouchers do not fall under the category of goods and services and they are exempted from levy of tax.