Sale of Voucher is not chargeable to GST - High Court

Recently, Hon’ble Karnataka High Court (‘HC’) in the case of Premier Sales Promotion Private Limited v. Union of India, 2023-VIL-67-KAR, held that vouchers in form of Semi-closed Pre-Paid Instruments (‘PPIs’) duly approved by RBI, are not chargeable to GST.

Facts of the Case

• The taxpayer is engaged in buying and selling of gift vouchers, cash back vouchers and e-vouchers.
• The customers use these vouchers as consideration for purchase of goods or services.
• Appellate Authority for Advance Ruling (‘AAAR’) held that these vouchers are goods and hence, chargeable to GST.
• Against the Ruling, taxpayer filed a writ before the HC contending that GST is not chargeable on sale of vouchers for the following two reasons:

1. That the vouchers are ‘money’ in terms of GST laws and hence, neither goods nor services; and
2. That at the time of delivery of vouchers, it is merely an actionable claim

HC Decision

• The Court also observed that issuance of vouchers is like a pre-deposit for goods or services and not actual supply of goods or services.
• The Court held that PPIs are like currency and can be transacted only at the time of their redemption and not at the time of their delivery. Thus, vouchers are neither goods nor services and hence. not chargeable to GST

GABA & CO. | Remarks

• The industry trading in vouchers is not paying GST on their supply since inception of GST, thus, having a huge exposure.
• This decision may be a sigh of relief, however, in our view, the matter is far from over. The definition of ‘money’ vis-à-vis distinct categories of PPIs are still to be evaluated in greater depth.
• For example, the expression used is ‘or any other instrument recognised by the RBI when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination’.

The three moot questions to be analysed are:

(a)?????????Whether the expression ‘Or any other instrument’ be read Ejusdem Generis to the enumeration given in the definition or not?

(b)?????????Whether the expression ‘used as a consideration to settle an obligation’ would cover an instrument which can settle any obligation (e.g., Paytm wallet etc.), or which can settle a particular obligation in a particular time frame at a particular point of time (like gift vouchers of a particular brand at the time of their redemption)?

(c)?????????Whether the expression ‘or exchange with Indian legal tender’ represents a mandate that such instrument is also capable of conversion in money or not?

• Further, the relevance and scope of time of supply provisions given for supply of vouchers is to be analysed.

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Disclaimer:

The views expressed in the update are strictly personal, based on our understanding of the underlying law. We are not responsible for any injury, loss or cost arising to any person who refers this update and acts or refrains from any act accordingly. We would suggest that a detailed legal advice must be sought before relying on this update.