Vouchers: Understanding the Nature and Taxability under GST

The changing trend of cashless transactions has brought out various alternative modes of payments and one amongst them is Gift vouchers, cash-back vouchers and e-vouchers, which are either received as a reward or are purchased through various modes. The rise of e-commerce transaction has further provided an impetus for use of vouchers. Vouchers in general refer to an instrument that can be used instead of money to pay (wholly or in part) for goods and services as against the value stated (face value) in such vouchers.  This article emphasizes the nature of vouchers and taxability thereof under GST Law.   

The Vouchers are instruments that facilitate purchase of goods or services against the value stored on such voucher and hence the same are in the nature of the pre-paid payment instruments (PPIs). The Reserve Bank of India (RBI) has issued master direction under the authority provided under the Payment and Settlement Systems Act, 2007 specifically recognizing the PPIs used for the purchase of goods or services and the same is classified into 3 types viz.

a. Closed System PPIs: Instruments which are issued by an entity facilitating the purchase of goods and services from that entity only;

b. Semi-Closed System PPIs: Instruments which are used for purchase of goods or services at group of clearly identified merchant locations/establishments. In other words, the supplier of goods/services against the Voucher is known but not the goods/services; and

c. Open System PPIs: Instruments which can only be issued by banks and can be used at any merchant for purchase of goods or services.

In the case of semi-closed and open PPIs, the goods/services to be redeemed against such instrument is not known at the time of issuance of such instruments. But in closed PPIs the goods/services to be redeemed are known at the time of issuance of such instrument.

In 2021, the RBI issued revised directions in 2021 which re-classified the PPIs into Small PPIs which can be used at a group of clearly identified merchant locations/establishments which have specific contract with the issuer to accept the PPIs as payment instruments which are similar to the Semi-closed PPIs; and Full-KYC PPIs which can be used for purchase of goods or services, funds transfer or cash withdrawal.

Under GST, the ‘Vouchers’ have been defined under Section 2(118) of the Central goods and services Tax Act, 2017 (CGST Act) as instruments which entail an obligation to accept them as consideration for supply of goods or services.

In order to determine the taxability of vouchers, it is pertinent to refer to definition of ‘money’ [Section 2(75) of the CGST Act] which specifically includes instruments recognized by RBI when the same are used as consideration to settle an obligation. Further, the term ‘consideration’ [Section 2(31) of the CGST Act] is defined as any payment made or to be made in response to inducement of supply of goods or services. From the conjoint understanding of the above definitions, it is clear that the vouchers which are instrument recognized by RBI with an obligation to accept it as consideration or part consideration for supply of goods or services, amounts to money. It must also be noted that the definition of ‘goods’ [Section 2(52) of the CGST Act] as well as ‘services’ [Section 2(102) of the CGST Act] excludes money and securities. Hence, the Vouchers being in the nature of money neither qualifies as goods nor as services under GST and consequently not liable to GST per-se.

Broadly, from a user perspective there two types of vouchers-

• voucher redeemable against specific goods and services or

• voucher is issued with reference to value, without mentioning the details of goods or services which can be redeemed.

Section 12(4) and Section 13(4) are provisions providing details with respect to time at which tax is payable and the same has been indicated in the table below-

The Legislature has thus clearly provided for levy of GST on the goods/services supplied against voucher either at the time of supply of Voucher if the goods/services are identifiable at the time of distribution of voucher, or at the time of redemption of the Voucher if the goods/services are identifiable only at the time redemption.

In the case of vouchers which are in the nature of semi-closed PPIs, the goods/services are not identifiable at the time of issue of vouchers and hence the time of supply of such vouchers is the date on which the said voucher is redeemed by the end customer on purchase of some goods or supply of services.

As a mode of marketing, the vouchers may not indicate the exact value of the goods or services which are redeemable using such voucher or indicate an inflated value of the goods or services redeemable. Rule 32(6) of the CGST Rules provides for the valuation mechanism for supply of Vouchers. As per the said provision, the value of the voucher is considered to be equal to the money value of the goods or services redeemed as against such voucher and the tax is payable on face value of the voucher at the time of redemption of such voucher.

Once the entire face value is taxed at a later point of time, no part of the said value can be taxed at any earlier stage since the voucher continues to be an instrument right from their generation till the date of redemption and does not translate into goods or services.

Recently, a Writ Petition was filed before the Hon’ble High Court of Karnataka in M/s Premier Sales Promotion Vs Union of India and others challenging the Appellate Authority for Advance Ruling which held that the supply of voucher is taxable as goods under the CGST Act. The Hon’ble Court while placing reliance on the definitions of voucher, money, goods and services enumerated under the CGST Act, held that the Vouchers are mere instruments accepted as consideration for supply of goods or services which does not have any inherent value of their own and as such, vouchers would fall under the definition of ‘money’ which excludes goods as well as services and hence the distribution of vouchers by the Petitioner is not leviable to tax.

The Appellate Authority for Advance ruling in M/s Myntra Designs Pvt Ltd held that input tax credit (ITC) is not available for procurement of vouchers. The facts involved in the case is that Myntra designs Pvt Ltd (Company) is an e-commerce portal which purchased vouchers and subscription packages in the form of coupon codes from vendors on payment of GST and made it available to eligible customers participating in loyalty program. It was contended that the company had procured such vouchers from the vendors in the course or furtherance of the business and is entitled for ITC on the same. It was further contended that procurement of vouchers by the company is not in the nature of goods and ITC cannot be denied on the same in terms of Section 17(5) (h) of the CGST Act stating that the same is in the nature of gift.

The Appellate Authority for Advance ruling relying on the judgment of Hon’ble High Court in Premier Sales Promotion, held that the primary condition for eligibility to ITC is that there should be an inward supply of either goods or services or both on which tax is charged by the supplier and when the vouchers intended to be procured by the company is neither goods nor services, the question of eligibility of ITC does not arise at all.   

To summarize, vouchers being a pre-paid payment instrument qualifies to be money which are neither goods nor services and a transaction involving voucher do not qualify as supply in terms of Section 7 of the CGST Act. The time of supply for goods or services supplied in lieu of vouchers (in the nature of semi-closed PPIs) will be the date of redemption, as the nature of goods or services redeemed is not known on the date of issuance of voucher and the value of goods or services supplied in lieu of voucher will be the face value of goods.

Rishab J is a Senior Associate and Dhanyatha R is an Associate at Shivadass & Shivadass (Law Chambers).

The contents and comments of this document do not necessarily reflect the views/position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s).