In common trade parlance, a voucher is a Prepaid Payment Instrument (PPI) accepted as consideration for the supply of goods and services. As per Black's Law Dictionary, a Voucher, when used in connection with the disbursement of money, is defined as "a written or printed instrument in the nature of an account, receipt, or acquittance, that shows on its face the fact, authority and purpose of disbursement." It appears that a voucher is a kind of redeemable transaction bond worth a particular monetary value and can only be used for specific goods, for which such a voucher is issued. Accordingly, a voucher is a mode of payment to procure goods or services (against which such voucher is issued), and thus, it can be said to be equivalent to money.
Owing to the increased competition in the retail sector, the issuance of vouchers has seen an uprising trend in the Indian market today, especially in the e-commerce space. PPIs can be broadly classified into three categories:
a. Closed system payment instruments which are issued by a company for facilitating the purchase of goods and services and do not permit cash withdrawal or redemption.
b. Semi-closed system payment instruments which can be used for the purchase of goods and services of clearly identified merchants having a specific contract with the issuer to accept such PPIs and do not permit cash withdrawal or redemption.
c. Open system payment instruments where PPIs can be used for the purchase of goods and services and also permit cash withdrawal at ATMs.
Usually, the vouchers that are issued by trade, are semi-closed or closed payment instruments. Once vouchers are issued and redeemed, they come under the lens of taxation, as tax authorities seek to treat vouchers as goods and levy tax. Under GST, there has been confusion arising over the taxability of transactions where PPI is used as a mode of payment for goods and services. Although the definition1 and time of supply2 for vouchers have been provided under the CGST Act3, however, its classification as 'goods' or 'services', or simply 'money' and its taxability lacks clarity. The GST Department has always been inclined towards taxing vouchers at the time of issuance even though underlying goods or services for which such vouchers are issued, would also eventually suffer tax at the time of its supply. Such levy of tax at issuance of vouchers leads to double taxation, where first the vouchers would be taxed, and thereafter, the goods or services (for the same value as the voucher) against which such vouchers are issued, would be taxed.
There has been litigation around the taxability of vouchers, both under the pre-GST regime as well as the post-GST regime. During the erstwhile regime, the Bombay High Court4 held that Sodexo meal vouchers are goods within the meaning of the Maharashtra Municipal Corporations Act, 1949, as against the Petitioner's contention that said meal vouchers are payment instructions or payment instruments issued under a payment system operated under the Payment and Settlement Systems Act, 2007, as per the authorization received from the Reserve Bank of India, as said vouchers are a medium to acquire any article for consumption, use or sale and the said vouchers are not capable of consumption, use or sale by themselves. This decision created lots of tension in the Industry but thankfully, the Supreme Court reversed the decision of the High Court in Sodexo SVC India Private Limited5 and held that Sodexo meal vouchers cannot be treated as 'goods' for the purpose of levy of Octroi or Local Body Tax. The Supreme Court held that such vouchers are merely 'payment instruments' and not 'goods' and they become taxable only when such vouchers are redeemed.
Thereafter, in the case of Kalyan Jewellers6, the Tamil Nadu Appellate Authority for Advance Ruling held that a voucher per se is neither goods nor service and is a means of payment of consideration. It held that any instrument recognized by the Reserve Bank of India and used as consideration to settle an application will qualify as money.
However, the Karnataka Appellate Authority for Advance in the case of M/s Premier Sales Promotion7 had a divergent view and held that vouchers are not 'money' but 'goods'.
But recently, the High Court of Karnataka8, overturned the said decision of Karnataka AAAR in the writ petition filed byM/s Premier Sales Promotion Private Limited and held that semi-closed PPIs are merely instruments accepted as consideration for the supply of goods or services; and do not have any inherent value of their own. The Petitioner in the present case, procured gift vouchers, cash-back vouchers and e-vouchers from the issuer companies and supplied the same to its clients. The clients used the vouchers for their employees (giving them in the form of incentives) or customers for promotional schemes for use as consideration for the purchase of goods or services. The High Court analyzed the definition of 'Money' and 'Vouchers' as provided under the CGST Act and held that vouchers do not attract any tax since vouchers qualified as instruments, falling under the purview of 'money' and consequently excluded from the definition of 'goods' and 'service'.
Thus, it is seen that primarily Courts have held that vouchers per se are not taxable under GST, but it is the goods or services purchased against such vouchers, which are taxable.
While the aforesaid decision seeks to settle the dust around the relevant issue of taxability of semi-closed PPI transactions (which is the most common form of vouchers issued), the fate of other vouchers still remains in perplexity.
However, when the nature of vouchers remains the same, i.e., payment instrument, their taxability should also remain the same.
Conclusion:
Presently, the Industry is not paying tax on the issuance of the voucher, however the GST Department has also made its stance clear during objections raised on such non-payment of tax on PPIs, thus, the assessee carries a huge exposure burden on its shoulders. The decision in Premier Sales Promotion (supra 8) is a welcome step and would be beneficial to the trade at large, be it vouchers given to customers as part of promotional schemes or given to employees as a part of incentives.
Footnotes
1 Section 2(118) of CGST Act
2 Section 12(4) of CGST Act
3 The Central Goods and Services Tax Act, 2017
4 Writ Petition Nos. 5653 of 2010 and 7503 of 2013
5 2015-TIOL-293-SC-MISC
6 2021-VIL-20-AAAR
7 2021-VIL-74-AAAR
8 2023-VIL-67-KAR
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
