2020 (1) TMI 30 - AAR - GST

Classification of Own Closed Pre-Paid Instruments as 'Vouchers' under CGST Act

In Re: M/s. Kalyan Jewellers India Limited

The judgment classified Own Closed Pre-Paid Instruments (PPIs) issued by the applicant as 'vouchers' under the CGST Act, considering them as a supply of ... Classification of supply - supply of goods or supply of services - gift vouchers / gift cards - issue of Own Closed PPIs by the ‘Applicant’ to customers - time of supply of goods or services warranting tax liability - rate of taxes applicable for such supply of goods or services - levy of GST on issue of PPIs by Third Party PPI Issuers at the time of issue in their Hands - levy of GST on amount received by the ‘Applicant’ from Third party PPI issuers - GST collection at the time of sale of goods or services on redemption of PPIs i.e. own and from Third Party, sufficient compliance of the Provisions of the CGST Act or not - treatment of Discount (the difference between Face value and discounted value) in the hands of issuer of PPI in case of third party PPIs - levy of GST on differential value. Whether the issue of Own Closed PPIs by the ‘Applicant’ to customers be treated as supply of goods or supply of services as defined under the provisions of the CGST / SGST Act 2017 and rules, notifications there on? - If yes, is the time of issue of Own Closed PPIs by the ‘Applicant’ to customers is the time of supply of goods or services warranting tax liability? - If yes, what is rate of taxes applicable for such supply of goods or services as the case may be? - HELD THAT:- n the case at hand, it is stated that the gift cards / vouchers are purchased by the customers on paying a value in money specified on the gift card / voucher. When the money is paid by the customer, such a value is loaded onto the card electronically. PPIs issued by the applicant can be redeemed against purchase of any jewellery in any of the outlets of KJIL across India. This means that when the customer of bearer of the gift card wants to pay for some jewellery in KJIL’s stores, they can pay with either cash or with gift voucher - In this case, the gift voucher/ gift card is an instrument squarely covered under the definition of “payment instrument” under Payment and Settlement Act 2007. It is not a claim to a debt nor does it give a beneficial interest in any movable property to the bearer of the instrument. In fact, if the holder of the gift card/ voucher loses or misplaces it and is unable to produce it before the applicants 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 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. Thus, those instruments which satisfy the conditions of being accepted as consideration/ part consideration against purchase of specified goods and the identities of the potential suppliers are indicated in the instruments are to be considered as Vouchers’ for the purposes of GST - Applying the above, the PPIs under consideration are ‘Vouchers’ for the purposes of GST. Further, these PPIs are gift cards supplied by the applicant either directly through to customer or through various distribution channels. In the case of paper based gift vouchers classifiable under CTH 4911 the applicable rate is 6% CGST as per Sl.No. 132 of Schedule II of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 and 6% SGST as per Sl.No. 132 of Schedule II of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 as amended - In the case of gift cards, the same are classifiable under CTH 8523 and the applicable rate is 9% CGST as per Sl.No. 382 of Schedule III of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 and 9% SGST as per Sl.No. 382 of Schedule III of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.o. (Ms) No. 62 dated 29.06.2017. Territorial jurisdiction - scope of advance ruling - Closed PPIs- issued through Third Party PPI issuers - Whether the issue of PPIs by Third Party PPI Issuers subject to GST at the time of issue in their Hands? - Whether the amount received by the ‘Applicant’ from Third party PPI issuers subject to GST? - If No, GST collection at the time of sale of goods or services on redemption of PPIs i.e. own and from Third Party will be a sufficient compliance of the Provisions of the CGST Act? - What is the treatment of Discount (the difference between Face value and discounted value) in the hands of issuer of PPI in case of third party PPIs. Whether the ‘Applicant’ will be liable to pay GST on this difference Value? - HELD THAT:- In this case it is seen that Qwikcilver is the supplier of the vouchers to customers and Qwikcilver also supplies their services to KJIL, Kerala. The above questions pertain to these two supplies. Kalyan Jewellers, Kerala is a distinct entity from KJIL and Qwikcilver is based in Bangalore. This Advance Ruling Authority does not have Jurisdiction over the activity undertaken by these entities. Issues Involved:1. Classification of Own Closed PPIs as supply of goods or services.2. Determination of the time of supply for Own Closed PPIs.3. Applicable tax rates for the supply of Own Closed PPIs.4. GST applicability on PPIs issued by Third Party PPI Issuers.5. GST applicability on amounts received from Third Party PPI Issuers.6. Sufficiency of GST collection at the time of redemption of PPIs.7. GST liability on the discount value in case of third-party PPIs.Issue-wise Detailed Analysis:1. Classification of Own Closed PPIs as Supply of Goods or Services:The applicant, a manufacturer and trader of jewelry, issues Own Closed Pre-Paid Instruments (PPIs) to customers. These PPIs are redeemable at any of the applicant's outlets. The applicant contends that these PPIs are actionable claims and not subject to GST. However, the judgment clarifies that PPIs are not actionable claims but are instead classified as 'vouchers' under Section 2(118) of the CGST Act. The judgment states, 'Therefore the PPIs under consideration squarely falls under the definition of 'Voucher' as defined in section 2(118) of CGST Act.' Consequently, these vouchers are considered 'goods' under Section 2(52) of the CGST Act.2. Determination of the Time of Supply for Own Closed PPIs:The time of supply for vouchers is governed by Section 12(4) of the CGST Act. The judgment specifies, 'if the vouchers are specific to any particular goods specified against the voucher, then the date of issue of vouchers is the time of supply of vouchers to the customer.' If the vouchers are redeemable against any goods, the time of supply is the date of redemption of the voucher.3. Applicable Tax Rates for the Supply of Own Closed PPIs:The judgment provides the applicable tax rates based on the classification of the vouchers:- For paper-based gift vouchers (classified under CTH 4911), the applicable rate is 6% CGST and 6% SGST.- For gift cards (classified under CTH 8523), the applicable rate is 9% CGST and 9% SGST.4. GST Applicability on PPIs Issued by Third Party PPI Issuers:The judgment does not address this issue as it pertains to activities undertaken by entities outside the jurisdiction of the Authority for Advance Ruling, Tamil Nadu. The judgment states, 'This Advance Ruling Authority does not have Jurisdiction over the activity undertaken by these entities.'5. GST Applicability on Amounts Received from Third Party PPI Issuers:Similar to the previous issue, this question is not answered due to jurisdictional limitations. The judgment reiterates, 'This Advance Ruling Authority does not have Jurisdiction over the activity undertaken by these entities.'6. Sufficiency of GST Collection at the Time of Redemption of PPIs:This issue is also not addressed due to the jurisdictional scope of the Authority for Advance Ruling, Tamil Nadu. The judgment maintains, 'This Advance Ruling Authority does not have Jurisdiction over the activity undertaken by these entities.'7. GST Liability on the Discount Value in Case of Third-Party PPIs:The judgment does not provide a ruling on this issue due to jurisdictional constraints. It states, 'The questions raised at Sl.No. 4,5,6 and 7 are not answered for the reason that the said questions are not admitted as this authority does not have jurisdiction.'Ruling:1. Own Closed PPIs issued by the applicant are classified as 'vouchers' and are considered a supply of goods under the CGST/TNGST Act 2017.2. The time of supply for such gift vouchers/gift cards is the date of issue if specific to particular goods, otherwise, it is the date of redemption.3. The applicable tax rates are 6% CGST and 6% SGST for paper-based vouchers (CTH 4911) and 9% CGST and 9% SGST for gift cards (CTH 8523).4. Questions related to third-party PPIs are not addressed due to jurisdictional limitations.