Recently, the domain of e-commerce has witnessed a remarkable and rapid expansion. E- commerce entails the exchange of goods and services through digital platforms. In light of the intense competition characterizing today's market, businesses are increasingly driven to outshine their counterparts by offering a diverse array of attractive and beneficial schemes to consumers. A notable component of e-commerce transactions is the issuance of gifts, vouchers, promotional codes, and similar incentives. From a taxation standpoint, there has been considerable debate surrounding several pertinent issues, particularly the taxability of such instruments—whether they fall within the definition of "goods" or "services," are classified as "actionable claims," or fit under another legal classification. To address these concerns, it is necessary to examine the relevant provisions of the Central Goods and Services Tax (CGST) Act and the current legal position on the matter.
RBI's Acknowledgment Of Vouchers As Prepaid Payment Instruments (PPIs)
Vouchers are instruments that enable the purchase of goods or services based on the value stored within them, and as such, they function as pre-paid payment instruments (PPIs).
As per the Master Circular- Policy Guidelines on Issuance and Operation of Pre-paid Payment Instruments in India1 issued by the RBI, it defines pre-paid Payment instruments (PPIs) as pre-paid payment instruments are payment instruments that facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card. The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount (collectively called Prepaid Payment Instruments hereafter).
The PPIs have been classified into three types:
1. CLOSED SYSTEM PAYMENT INSTRUMENTS: These are financial instruments issued by an entity to enable the acquisition of goods and services exclusively from that entity. These instruments do not permit cash withdrawals or redemption. Given that they do not facilitate payments or settlements for third-party services, the issuance and operation of such instruments fall outside the purview of recognized payment systems.
II. SEMI-CLOSED SYSTEM PAYMENT INSTRUMENTS: These are payment instruments designed for the acquisition of goods and services, including financial services, at a select network of designated merchant locations or establishments. These merchants have entered into a specific agreement with the issuer to accept such instruments as a means of payment. Notably, these instruments do not allow for cash withdrawals or redemptions by the holder.
III. OPEN SYSTEM PAYMENT INSTRUMENTS: These are payment instruments that facilitate the purchase of goods and services, including financial services such as fund transfers, at any merchant location equipped with card-accepting point-of-sale terminals. Additionally, these instruments allow for cash withdrawals at ATMs or Business Correspondents (BCs).
Relevant Provisions Uunder GST
- The Central Goods and Services Tax Act, 2017 defines voucher as “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.”2
- The CGST Act, 2017 states that an “actionable claim” shall have the same meaning as assigned to it under s.3 of the Transfer of Property Act, 1882.3 i.e.,
“Actionable claim” means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.4
CGST Act, 2017 even states about as to what would be the time of supply in case of supply of vouchers which is:
a. The date of issue of voucher, if the supply is identifiable at that point; or
b. The date of redemption of voucher, in all other cases.5
- CGST defines “money” as “the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognized by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.”6
- “Goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.7
- “Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.8
Hence, a holistic interpretation of the provisions of the Goods and Services Tax (GST) and the guidelines issued by the Reserve Bank of India (RBI) reveals that vouchers are recognized as instruments under the purview of the RBI. Consequently, vouchers are classified as "money" within the context of GST. Given that both the definitions of "goods" and "services" under GST explicitly exclude money, it follows that voucher, too, fall outside the scope of both "goods" and "services."
Landmark Judgements
Courts have expressed varying interpretations on this legal matter, which have been categorized as follows.
Vouchers Come Under The Ambit Of Goods And Services
- In Re: Kalyan Jewellers India Ltd.9, the brief facts of the case are KJIL is a manufacturer and trader of gold and other jewelry items, operating through both retail outlets and an online portal. As part of its sales promotion strategy, KJIL introduced the option of issuing various types of Pre-Paid Instruments (hereinafter referred to as PPIs) to its customers, available through its retail outlets as well as a third-party online portal. These PPIs are commonly referred to as "Gift Vouchers/Gift Cards" in industry practice. The issuance and operation of these PPIs are governed by the Payment and Settlement Systems Act, 2007, along with the Master Directions and other relevant notifications, circulars, and communications issued by the Reserve Bank of India or any other pertinent authorities, such as the guidelines on the Issuance and Operation of Prepaid Payment Instruments (PPI) issued by RBI on 11th October 2017. The legal issue involved was whether the issuance of these PPIs were considered to be supply of goods and services or were mere actionable claims. It was held that the PPIs issued by the applicant were vouchers and were considered to be a supply of goods under the CGST Act, 2017 and that the time of supply of such gift vouchers/gift cards by the applicant to the customers shall be the date of issue of vouchers if the vouchers are specific to any particular goods specified against the voucher. If the gift vouchers/gift cards are redeemable against any goods bought, the time of supply is the date of redemption of voucher.
- In Re: Premier Sales Promotion Pvt. Ltd.10, the facts of the case were that the Appellant was a Private Limited Company engaged in providing marketing services, specifically in the sourcing and supply of E-Vouchers. Clients issued work orders to the Appellant periodically for the provision of vouchers with a pre-defined face value. These vouchers were then distributed by the clients to their customers, who could redeem them at specified merchants that had agreed to accept the vouchers as payment for goods or services. The Appellant was responsible for procuring various types of vouchers, including 'gift
vouchers,' 'cashback vouchers,' and 'open vouchers,' which were redeemable at designated e-merchants. The Appellant entered into agreements with these merchants to purchase the vouchers, which were subsequently sold to their clients. The issue was whether the voucher themselves, or the act of supplying them is taxable or not? It was held that vouchers traded by the Appellant were goods and not actionable claims, and that the supply of vouchers by the Appellant was a supply of goods in terms of Section 7 of the CGST Act.
Vouchers do not come under the ambit of Goods and Services
- In case of Sodexo SVC India Pvt. Ltd. v. State of Maharashtra11, the facts of the case were that the Appellant company provided pre-printed meal vouchers, known as "Sodexo Meal Vouchers." It entered into agreements with establishments or companies that employed a large number of staff. These companies used the vouchers to offer meals and related benefits to their employees. After receiving vouchers of a specific denomination, the companies distributed them to employees. The Appellant had established arrangements with various affiliates, such as restaurants and stores, where employees could redeem the vouchers for food and other items. The affiliates presented the vouchers to the Appellant for reimbursement of their face value, minus a service charge as per their contractual arrangement. The central issue at hand was whether the vouchers could be classified as 'goods' for the purpose of imposing Octroi or Local Body Tax (LBT), or if the Appellant's activity constituted merely the provision of a service. In its judgment, the court, referring to the Reserve Bank of India's guidelines, determined that the appropriate criterion to assess this would be whether the vouchers could be traded or sold independently. The court concluded that the answer was negative. As such, this criterion for classifying the vouchers as 'goods' was not met, leading the court to rule that the vouchers do not fall within the definition of 'goods' for the purposes of LBT imposition.
- In Re-Myntra Designs Pvt. Ltd.12, The Appellant operated the e-commerce platform www.myntra.com, a prominent Indian fashion e-commerce company, specializing in the sale of fashion and lifestyle products. To expand its business, the Appellant proposed to launch a loyalty program, where customers would earn loyalty points based on their purchases made on the platform. Participation in the program was contingent upon meeting specific eligibility criteria and accepting the program's terms and conditions. Through its portal, the Appellant made vouchers and subscription packages available to customers who wished to redeem the loyalty points they had accumulated.
The major issue involved was whether the appellants could avail the Input Tax credit on these vouchers procured by the appellant to the eligible customers and to decide this issue, one more question of law arose regarding the fact whether these vouchers would come under the ambit of “goods”, “services” or not because if the same would not come under the ambit of any of them, the question of ITC wouldn't arise. While passing the judgment, reliance was placed on the case of M/s Premier Sales Promotion Pvt. Ltd.13 and the same was upheld with regards to the fact that vouchers do not come under the ambit of “goods” or “services” as defined under GST and therefore, no question of ITC would arise because the primary condition for the eligibility of ITC is that there should be an inward supply of either goods or services.
- In Premier Sales Promotion Pvt. Ltd. v. UOI14, the advance ruling passed by the K'taka HC vide Order No. KAR/AAAR/11/2021-2215 wherein it was held that the vouchers come under the ambit of goods as defined under GST, was overruled in this case. It was stated that 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. Therefore, ultimately it was held that that vouchers do not fall under the category of goods and services and they are exempted from levy of tax.
Findings
Upon reviewing the recent case law pertaining to this legal issue, it is unequivocally established that the issuance of a voucher by any entity does not constitute the supply of services, nor do vouchers fall within the definition of 'goods. As such, vouchers are not subject to taxation at the time of issuance. However, pursuant to the provisions of the Goods and Services Tax (GST) regime, specifically under the CGST Act, 2017, any subsequent redemption of the voucher is subject to tax
References:
1DPSS.CO.PD.PPI.No.01/02.14.006/2016-17
(https://www.rbi.org.in/commonman/Upload/English/Notification/PDFs/16MC9102DB7D5FE742CCB5D0715 A77F6666E.PDF)
2 The Central Goods and Services Tax Act, 2017, § 2 cl. 118, No. 12, Acts of Parliament, 2017 (India).
3 The Central Goods and Services Tax Act, 2017, § 2 cl. 1, No. 12, Acts of Parliament, 2017 (India).
4 The Transfer of Property Act, 1882, § 3, No. 20, Acts of Parliament, 1882 (India).
5 The Central Goods and Services Tax Act, 2017, § 12 cl. 4, No. 12, Acts of Parliament, 2017 (India).
6 The Central Goods and Services Tax Act, 2017, § 2 cl. 75, No. 12, Acts of Parliament, 2017 (India).
7 The Central Goods and Services Tax Act, 2017, § 2 cl. 52, No. 12, Acts of Parliament, 2017 (India).
8 The Central Goods and Services Tax Act, 2017, § 2 cl. 102, No. 12, Acts of Parliament, 2017 (India).
9 In Re: Kalyan Jewellers India Ltd., MANU/AR/0256/2019.
10In Re: Premier Sales Promotion Pvt. Ltd., MANU/AI/0095/2021.
11 Sodexo SVC India Pvt. Ltd. v. State of Maharashtra, MANU/SC/1410/2015.
12 In Re-Myntra Designs Pvt. Ltd., MANU/AI/0005/2023.
13 M/s Premier Sales Promotion Pvt. Ltd. v. UOI, (2023) 111 GSTR 74.
14 Id.
15 Supra note 10.
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