2023 (2) TMI 130 - HC - GST

Semi-closed prepaid payment vouchers not taxable at issuance, only upon redemption as they represent pre-deposits

M/s Premier Sales Promotion Pvt Limited Versus The Union Of India Ministry Of Finance Department Of Revenue, The Principal Chief Commissioner of Central Tax, Bengaluru, The Commissioner Of Commercial Taxes Bengaluru

The Karnataka HC held that semi-closed prepaid payment instruments (vouchers) are not taxable at the time of issuance but only upon redemption. The court ... Taxability - point of taxation - whether the vouchers themselves are chargeable to tax at the time of supply or chargeable when goods and services are redeemed? - HELD 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 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. Petition allowed. Issues:1. Whether the Order passed by the Karnataka Appellate Authority for Advance Ruling should be quashed.2. Whether vouchers themselves are chargeable to tax at the time of supply or when goods and services are redeemed.Analysis:Issue 1:The petitioner sought to quash the Order passed by the Karnataka Appellate Authority for Advance Ruling. The petitioner argued that the vouchers involved are Pre-paid Payment Instruments (PPIs) and should not be considered as goods or services for the purpose of GST levy. The petitioner contended that the time of supply should be when the vouchers are redeemed, not at the time of issuance. The petitioner relied on RBI's master direction and legal definitions to support their argument. The High Court considered the arguments and authorities cited by both parties.Issue 2:The main question for consideration was whether the vouchers themselves are subject to tax at the time of supply or when goods and services are redeemed. The High Court analyzed the definitions of 'Money' and 'Voucher' under the CGST Act, highlighting that vouchers are instruments accepted as consideration and do not have intrinsic value. The Court referred to precedents like the Delhi High Court and Supreme Court judgments to support the view that transactions involving vouchers do not necessarily involve services and may not be taxable. The Court observed that the vouchers in question were semi-closed PPIs with no identified goods or services at the time of issuance, emphasizing that the value is realized only upon redemption.In conclusion, the High Court allowed the writ petition, quashing the Orders passed by the Karnataka Authority for Advance Ruling and the Appellate Authority. The Court held that vouchers do not fall under the category of goods and services and are exempt from tax levy.