GST on Gift Vouchers, Cards and Coupons

Since the pre-GST era, the taxability of gift vouchers or coupons as goods and not actionable claims has been a subject matter of litigation. The Supreme Court, in the case of Sodexo SVC India Pvt. Ltd., has held that Sodexo’s meal vouchers cannot be subject to Octroi or Local Body Tax in Maharashtra. The Court also clearly held that these vouchers are mere ‘payment instruments’ and not ‘goods’.

Taxation under GST

Section 2(118) of the CGST Act 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’

Further, Sections 12 and 13 of the CGST Act provide that time of supply in case of the supply of vouchers by a supplier, shall be:

(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.

The GST law has defined vouchers and specified their time of supply. However, it is silent on whether issuance of a voucher represents a supply of voucher per se or the goods or services to which it relates.  

Recently, the Authority for Advance Ruling (‘AAR’), Tamilnadu, in the case of Kalyan Jewellers India Ltd., has held that paper-based Pre-paid Payment Instruments (‘PPIs’) are classifiable under chapter heading 4911 (subject to GST at 12%) and plastic gift cards under chapter heading 8523 (subject to GST at 18%). The AAR also held that time of supply of PPIs shall be the date of issue of PPIs, if the PPIs are specific to any particular goods or shall be the date of redemption of PPIs if the PPIs are redeemable against any goods bought.

In this case, the taxpayer is engaged in the business of manufacturing and trading of gold and other jewellery items. As a part of sales promotion, the taxpayer issued its PPIs to its customers. The PPIs issued by the taxpayer are either in the form of paper or plastic cards. The taxpayer issued its PPIs (closed-ended PPIs), at face value, to its customers, which can be redeemed at any outlet of the taxpayer, across the country, for purchase of jewellery. Separately, the taxpayer has issued its PPIs to the third party at a discount, and the said third party, in turn, would issue the said PPIs at face value to the end customers (semi-closed PPIs).

On the various issues raised before the AAR, the authority observed as under:

• PPIs are not an actionable claim - It is not a claim to debt, nor does it give a beneficial interest in any movable property to the bearer of the instrument. If the holder of the gift card/ voucher loses or misplaces it and is unable to produce it before the taxpayer stores before the time limit specified on the card/ voucher, the instrument itself becomes invalid. Then the customer cannot use it to pay for any goods. Thus it is not an actionable claim as defined under the Transfer of Property Act. It is only an instrument accepted as consideration/part consideration while purchasing the goods from the issuer, and the identity of the supplier is established in the PPI.
• PPIs are vouchers/goods under the CGST Act - It qualifies as a voucher as defined under Section 2(118) of the CGST Act since it would be accepted as a consideration against the purchase of goods. The voucher has both a value and ownership and is the property of whoever first purchases or redeems it and is movable. It is neither money nor actionable claim, as discussed above. Hence, these gift vouchers/ cards issued by the taxpayer are ‘goods’ as per Section 2(52) of the CGST Act.
• Time of supply - As mentioned by the taxpayer, PPIs are redeemable against any jewellery purchase. Accordingly, the time of supply of PPIs is the date of redemption of PPIs.

The AAR ruling is silent on the taxability of goods (viz. jewellery) supplied against the redemption of PPIs. However, as there is an actual supply of goods or services on redemption, the Revenue Authorities will insist on payment of GST thereon. Thus, it may result in double taxation, i.e., at the time of issuance/redemption of the voucher and also at the time of actual supply of goods or services against the voucher. The AAR has failed to appreciate that the vouchers are merely a mode of payment, and per se, there is no intrinsic value.

Based on the ruling described above, it would be advisable for the business houses to evaluate the GST implications vis-a-vis their gift vouchers/cards.

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