In W.P. No.5569 OF 2022 (T-RES)-KAR HC-Issuance of vouchers is similar to pre-deposit and not supply of goods or services; Such vouchers cannot be taxed: Karnataka HC 
Justices P.S. Dinesh Kumar & T.G.Shivashankare Gowda [16-01-2023]

Read Order: M/S PREMIER SALES PROMOTION PVT LIMITED v. THE UNION OF INDIA 

Mansimran Kaur

Bengaluru, February 8, 2023: The definition of ‘vouchers’ as defined under the CGST Act, makes it clear that vouchers are mere instruments accepted as consideration for supply of goods or services, the Karnataka High Court has observed.

While allowing the present petition, the Division bench of Justice P.S. Dinesh Kumar and Justice T.G.Shivashankare Gowda  observed that as vouchers are considered as instruments, they would fall under the definition of ‘money’, defined under CGST Act and the Act excludes ‘money’ from the definition of goods and service and therefore not leviable to tax.

This Writ Petition was presented to quash the Order passed by the Karnataka Appellate Authority for Advance Ruling and to pass an order or to the Respondents to make suitable provisions in reference to the underlying subject of this writ.
 

Briefly stated the facts of the case were such that assessee was  a registered Company engaged in the transactions of procuring Pre-paid Payment Instruments of Gift Vouchers, Cash Back Vouchers and E-Vouchers from the issuers and supplying them to its clients for specified face value. Its clients issue such Vouchers to their employees in the form of incentive or to other beneficiaries under promotional schemes for use as consideration for purchase of goods or services or both as specified therein.

Assessee submitted an application before the Karnataka Authority for Advance Ruling, for a Ruling whether the Pre-paid Payment Instruments or vouchers themselves, or the act of supplying them is taxable, and at what stage, for each of the three categories of transactions undertaken by the assessee and if the transaction were liable to tax, under which category and what would be the rate of tax applicable.

The Advance Ruling Authority, ruled that the supply of vouchers is taxable as goods and the time of supply in all the three cases would be governed by Section 12(5) of the Central Goods and Services Tax Act, 2017. 

The assessee challenged the said order before Karnataka Appellate Authority for Advance ruling. The Appellate Authority has affirmed the order passed by the Advance Ruling Authority. Feeling aggrieved, the assessee presented this writ petition.

After considering the rival contentions, the Court noted that the  question that falls for consideration was  whether in the facts of this case, vouchers themselves are chargeable to tax at the time of supply or chargeable when goods and services are redeemed.

In view of the same, the Court noted that the  definition of ‘vouchers’ as defined under the CGST Act, makes it clear that vouchers are mere instruments accepted as consideration for supply of goods or services.They have no inherent value of their own. 

“As vouchers are considered as instruments, they would fall under the definition of ‘money’, defined under CGST Act. The CGST Act excludes ‘money’ from the definition of goods and service and therefore not leviable to tax”, the Bench added.

In furtherance of the same, the Court noted that it is not in dispute that the vouchers involved in the instant petition are semi-closed PPIs in which the goods or services to be redeemed are not identified at the time of issuance. 

Vouchers are distributed to its employees or the customers which can be redeemed by them. These PPIs do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banking Companies and they can be issued only with the prior approval of RBI.

In substance the transaction between the assessee and his 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 of vouchers to the assessee's client. Therefore, the issuance of vouchers is similar to pre-deposit and not supply of goods or services. Hence, vouchers are neither goods nor services and therefore cannot be taxed, the Court observed. 

In view of such observations, the petition was allowed.