13.02.2023: Vouchers Are Neither Goods Nor Services And Therefore Cannot Be Taxed – Karnataka High Court

The Hon’ble High Court of Karnataka vide its order dated 16.01.2023 in the matter of M/s Premier Sales Promotion Pvt. Limited Vs. The Union of India, Ministry of Finance Department Of Revenue, The Principal Chief Commissioner of Central Tax, Bengaluru, The Commissioner of Commercial Taxes Bengaluru in Writ Petition No. 5569 of 2022 (T-Res), held that the Vouchers being transaction in money cannot be considered as Goods or Services and therefore, not leviable to tax under GST.

The Petitioner filed the writ petition before the Hon’ble High Court praying for quashing the Order number KAR/AAAR/11/2021-22 dated December 22, 2021 passed by the Karnataka Appellate Authority for Advance Ruling. 

Facts of the Case: –

  • That the petitioner registered company (registered under the Companies Act, 1956) engaged in the transactions of procuring pre-paid instruments of Gift Vouchers, Cash Back Vouchers and E-Vouchers from the issuers and supplying them to its clients from specified face value.
  • The Clients of the petitioner further 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 both or specified therein.
  • That the assessee filed an advance ruling application before the Karnataka Advance Ruling Authority for seeking clarification ‘whether the pre-paid payment Instruments (PPI) or vouchers themselves, the act of supplying them is taxable, and at what stage, for each of three transactions undertaken by the assessee, and if the transaction were liable to tax, under which category and what would be the rate of tax
  • It was held by the Advance Ruling Authority, vide its Order [KAR/ADRG 37/2021] dated July 30, 2021, 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, 2017 [CGST] and the rate of GST [Goods and Services Tax] as per Entry No. 453 of Schedule 3 of Notification No. 1/2017- Central Tax(Rate) dated June 28, 2017.
  • On appeal being preferred against the said order, the Appellate Authority affirmed the order passed by the Advance Ruling Authority.

Petitioner’s Submissions: –

  • It was submitted on the behalf of the petitioner that RBI has issued a master direction [DPSS.CO.PD.No.1164/02.14.006/2017-18] on issuance and operation of PPIs, Para 9.1(i)(g) of which specifically recognises the PPIs for 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.
  • Further, the Voucher would remain be an instrument only till the time of its redemption.  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 good nor services as defined in Schedule-III of the CGST Act.
  • The Actual supply of goods or services take 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. Thus, the impugned order passed by the Advance Ruling Authority is contrary to law.
  • To support its stand, reliance was placed on the judgments of Sodexo SVC India Private Ltd. Vs. State of Maharashtra [2016 (331) ELT 23 (SC) (para 15)]; M/s. Kalyan Jewellers India [AAAR/11/2021 (para 7.9) a] (Appeal filed u/s 100(1) of the Tamil Nadu Goods and Services Tax Act, 2017/Central Goods and Services Tax Act, 2017)

On the other hand, it was submitted on the behalf of the respondents that it would be known to assessee precisely what is offered to the customer.  Therefore, it cannot be held that goods are not identifiable.  Further, with regard to the authority in M/s. Kalyan Jewellers India, it was submitted that the parties involved in that case were Kalyan Jewellers and his customers.  Thus, on facts, the principle is not applicable to the case on hand.

Held: –

  • The Hon’ble Court after considering the submissions made and the relevant records, found that the undisputed facts of the case are, assessee is a Company engaged in the transaction of procuring PPIs of Gift Vouchers, Cash Back Vouchers and E-Vouchers from the issuers and supplying them to its clients for specified face value. The Clients further issue the said vouchers to their employees inform of incentive or to other beneficiaries under promotional schemes for use as consideration for purchase of goods and services.  Assessee receives orders for supply of e-vouchers wherein the assessee sources e-vouchers for such clients as per the orders received and acts as an intermediary between the clients and the supplier of e-vouchers.
  • The Hon’ble Court taking note of the contention raised on the behalf of the petitioner/assessee that ‘the voucher when accepted shall be consideration or part-consideration for supply of goods or services or both and the voucher cannot be treated as goods or services’, found that the question that falls for consideration is ‘vouchers themselves are chargeable to tax at the time of supply or chargeable when goods and services are redeemed’?
  • Thereafter, the Hon’ble Court took note of the definition of ‘Money’ as provided in Section 2(75) and the definition ‘Voucher’ in Section 2(118) of the CGST Act, 2017.
  • The Hon’ble Court taking note of the submissions advanced on the behalf of the petitioner/assessee that ‘vouchers are recognized by the RBI as ‘payment instrument’ to be accepted as consideration or part consideration for supply of goods and services. However, the vouchers themselves cannot be treated as ‘goods and services’ for the purpose of levy of GST, as the vouchers do not have any intrinsic value and they represent the value of future goods or services to be redeemed’, found that the definition of Vouchers given under the GST 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 Hon’ble Court referring to the judgment of Union of India Vs. Delhi Chit Fund Association W.P. (C) 4512/2012, wherein it was held that ‘A mere transaction in money represents the gross value of the transaction. But what is chargeable to service tax is not the transaction in money itself since it can by no means be considered as a service’ found that it is clear that mere transaction of money or actionable claim, no services are involved and therefore, no tax is leviable.
  • The Hon’ble Court thereafter, taking note of the judgments in Sodexo SVC India Pvt. Ltd. (supra); M/s Kalyan Jewellers (supra), relied upon by the petitioner/assessee, found that 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. Further, 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.
  • Therefore, 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. Hence, the issuance of vouchers is similar to pre-deposit and not supply of goods or services, and the vouchers are neither goods nor services and therefore, cannot be taxed.

The Hon’ble Court with the above findings, allowed the writ petition by quashing the 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 order passed by the Appellate Authority, holding that the vouchers do not fall under the category of goods and services and they are exempted from levy of tax.

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