GST: Karnataka High Court Rules On Taxability Of Vouchers

EY Update

This alert summarises a recent ruling of the Karnataka High Court on taxability of vouchers under Goods and Services Tax.

Assessee is engaged in the transactions of procuring pre-paid payment instruments (PPIs) of gift vouchers, cash back vouchers and e-vouchers from the issuers and supplying them to its clients for specified face value. Such PPIs are recognized by the Reserve Bank of India for purchase of goods and services. Assessee applied for advance ruling to determine taxability on supply of such instruments.

The Karnataka Authority for Advance Ruling and Appellate Authority for Advance Ruling ruled that the supply of vouchers is taxable as goods and the time of supply would be governed by Section 12(5) of the Central Goods and Services Tax Act, 2017. Aggrieved by the same, assessee filed a writ petition before the HC.

Assessee argued that 'vouchers' as defined under the CGST Act makes it clear that the same are mere instruments accepted as consideration for supply and would fall under the definition of 'money'.

The high court observed that in substance, the transaction between the assessee and its 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.

Therefore, issuance of vouchers is similar to pre-deposit and not supply of goods or services. Hence, vouchers are neither goods, nor services and accordingly, cannot be taxed. Basis above, HC quashed the orders passed by AAR and AAAR.

Comments

• HC ruling is likely to provide guidance on one of the much-debated issue of classification and taxability of vouchers.

• In the present case, the PPIs issued by the taxpayer were recognized by RBI as mode of payment and hence, HC considered the same as money. Implication of this ruling on other kinds of vouchers needs to be determined basis facts of each case.

• Businesses may also have to analyze whether consideration received for supply of vouchers, wherein such vouchers can only be redeemed against specific goods or services, should be considered as advance payment for the underlying supply and taxed accordingly.

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