Whether cash gift cards are vouchers or goods or services in GST

[ROHIT GOEL]

One of our client is dealing in sale and purchase of prepaid cash gift cards against which assessee has earned commission on which applicable GST has been paid. However no GST has been paid on value contained in such card being transaction in money and same logic has been supported by AAAR of Tamil Nadu State in the case of Kalyan Jewellers India wherein it was held that these vouchers are neither goods nor services and GST will be paid at the time of redemption of such vouchers on underlying goods or services.

Further AAR of Karnataka in the case of Premier sales promotion pvt ltd. has taken adverse view and held that gift vouchers are treated as goods and thus liable to GST @18%. Now following questions arises in respect of the above matter

1. Whether these will be categorized as goods or services or vouchers

2. Whether GST will be applicable on sale of these cards and if yes please quote HSN and tax rate

3. Whether s. 194Q and 206C will be applicable on sale and purchase of these cards

[Shilpi Jain]

Vouchers sale will not be liable to gst.. only the commission earned wil be liable.

[Shilpi Jain]

Voucher sale is nothing but loading the card with money for use later

[YAGAY andSUN]

The Karnataka Appellate Authority of Advance Ruling (AAAR) while upholding the AAR’s ruling held that 18% GST payable on Supply of Vouchers. The Appellant, Premier Sales Promotion Pvt Ltd. 2021 (12) TMI 1299 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNARAKA is a Private Limited Company involved in the business of providing marketing services in the area of sourcing and supply of E-Vouchers. The clients issue work orders to the Appellant from time to time for supply of vouchers having a predefined face value. The client issues such vouchers to their customers who in turn can redeem the vouchers at any of the specified merchants who have agreed to accept the vouchers as consideration for goods or services supplied by them. The Appellant undertakes to procure several types of vouchers such as ‘gift vouchers’, ‘cashback vouchers’ and ‘open vouchers’ which are redeemable at e specified merchants. The Appellant enters into agreement with the merchants for the purchase of the vouchers which are in turn sold to their clients. The AAR has sought the advance ruling on the issue whether the 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 Appellant. If the answer to the above is in the affirmative, what would be the rate of tax at which this would be taxable. The Karnataka Authority of Advance Ruling (AAR) ruled that the 18% GST payable on the supply of Vouchers. The Appellant has contended that the vouchers are akin to lottery tickets and the Supreme Court in the case of Sunrise Associates has held that lottery tickets are actionable claims. The coram of Ranjana Jha and Shikha C. held that the vouchers traded by the Appellant are goods and not actionable claims, we hold that the supply of vouchers by the Appellant is a supply of goods in terms of Section 7 of the CGST Act. “We are in complete agreement with the ruling given by the lower Authority on the aspect of value of the vouchers for the purpose of GST, the rate of tax and the time of supply of the vouchers by the Appellant. Since the Appellant is not the issuer of the voucher, the provisions of time of supply under Section 12(4) will not apply and the time of supply will be governed by the provisions of Section 12(5) of the CGST Act,” the AAAR said. In Re: M/s Premier Sales Promotion Pvt Ltd. Counsel for Appellant: Shri. M.S Nagaraja, Advocate CITATION: 2021 (12) TMI 1299 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNARAKA

[Amit Agrawal]

I agree with Ms. ShilpiJi.

In my view, cash gift cards are nothing but transaction in money and value of such cards per se are not liable under GST (of-course commission / facilitation fee etc. for arranging such cards are leviable to gst).

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

I also wish to share some food for thoughts about AAAR ruling in case of PREMIER SALES PROMOTION PVT. LTD. as reported in 2021 (12) TMI 1299:

Relevant portion from 12 of said ruling is as follows:

"............... What construes money under GST law? Section 2(75) of the CGST Act defines 'money' as follows:

“2(75) money means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of Indiawhen used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value”

The vouchers in question are undoubtedly payment instruments recognised by RBI. The question is however, whether these vouchers can be considered as 'money'. The finding of the lower Authority is that these vouchers are not used by the Appellant to settle an obligation and hence cannot be considered as 'money' ; that it takes on the colour of money only when it is redeemed by the beneficiary at the time of purchase of goods and/or services. We agree with this finding. The voucher in the hands of the Appellant, does not settle an obligation but rather creates an obligation. The settlement of the obligation occurs at the time when the ultimate beneficiary uses the voucher to purchase goods and/or services. The definition of money also makes it clear that it is only when the payment instrument is used as consideration to settle an obligation, does it qualify as 'money'. This occurs only when the voucher is redeemed. Until then it is just an instrument recognised by the RBI but is not ‘money'. Therefore, the voucher in the hands of the Appellant cannot be termed as 'money'."

NOW, LET's SEE WHAT THIS FINDINGS REALLY MEANS:

A. If one notice "the Indian legal tender" (i.e. Rupee Note issued by RBI), it clearly having promise by the RBI governor that 'He promise to pay the bearer the sum of XXXX Rupees'.

If above-said reasoning of subject AAAR is taken at face value, then, "the Indian legal tender" is NOT 'Money' at the time it is issued by RBI.

B. Similarly, when one gifts Rs. 1,00,000/- to his relatives, he is liable to pay GST on Rs. 1,00,000/- as 'supply' of goods without any consideration (Reference: Clause (2) of Schedule 01 under Section 7 of the CGST Act, 2017'.

One can work out much more weird situations, if one takes these findings on face value.

Hence, reasoning adopted in these rulings are clearly wrong, in my humble view as these vouchers are nothing but 'money'.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In my view, the words 'when used' in the the definition of 'money' as reproduced above needs to be understood as 'When usable".

I also feel that the words 'when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination' applies to all the preceding items listed in the definition i.e. the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India.

Here, linking the the words 'when used as a consideration to settle an obligation or exchange' exclusively with "Instruments reconsigned by RBI' (as done by AAAR) is wrong.

Here, the relevance of the word 'any other instrument' (specifically the word "other") should not be missed.

AAAR has given its reasoning by ignoring the word 'other' and its implications. It missed the relevance of the word 'other' all-together.

It is worth noting that all other listed items in the definition (i.e. the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance) are also be 'used' as a consideration to settle an obligation or exchange with Indian legal tender of another denomination.

The words 'Any Other ...' links "later part of the definition" to entire list of items preceding, in my humble view.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[YAGAY andSUN]

The order of AAAR is an appealable order, let see whether the aggrieved party files an appeal against this impugned order or not to submit the contentions as mentioned by our learned experts to get the finality on this disputed matter.

AI Summary

GST treatment of prepaid gift cards is disputed; taxability hinges on whether vouchers are goods or money and timing of supply. The GST treatment of prepaid cash gift cards is disputed: one authority treats such instruments as vouchers not taxable until redemption, while another treats supplied vouchers as goods taxable on supply; commissions or facilitation fees are consistently regarded as taxable services, and time-of-supply consequences depend on whether the supplier is the voucher issuer or a reseller.