Taxabilty ?

[Harish Chander Bhatia]

My client Y is engaged in providing business support service. Y sold gift vouchers, each value Rs:10000/- to the company X. The company X will give these gift Vouchers to its customers on purchase of Rs:50000/-. The customer will fill-up the details in the gift voucher and will send back to Y with an amount of Rs:20000/- and on receipt of filled up gift voucher and Rs: 20000/- from the customer, Y will arrange for the holiday package, including travel cost, boarding and lodging , which will cost to Y approx Rs:50000/-. Further against the gift vouchers initially sold by Y to X , the X company instead of making any payment has given gift voucher of his company to Y. redeemable at any of its outlets . Please advise how this would be chargeable under service tax.

[Rama Krishana]

One thing is missing in the query is that, whether Y is providing any service to X apart from providing gift vouchers to X. Assuming that the answer is yes, you have to see that whether gift vouchers are in relation to any service being provided by Y to X. On the other side if Y is not provided any service to X, in that case, services of Y shall be merely of promoting brand name of its own services. I thing, the service, if was not taxable earlier, the same would be taxable after the date to be notified, as introduced by Finance Act, 2010. The new category is "Promoting a 'brand' of goods, services, events, business entity etc."

[Harish Chander Bhatia]

Y is providing services to the customers of X for providing hotel accommodation and air tickets etc. Is it not advisable to charge sales tax for the vouchers sold by Y to X ? The services should be charged on the amount received from the customer of X to Y. Please advice.

AI Summary

Service tax on gift vouchers applies where vouchers fund customer services; brand promotion levy may apply otherwise. Levy of service tax hinges on whether Y supplies taxable travel and accommodation services to end customers in return for amounts received upon voucher redemption; in that case service tax should be charged on the consideration received. If Y provides no service to X and the transaction merely promotes a brand, the arrangement may attract the newly notified brand promotion service tax. Transfers of X's redeemable vouchers to Y instead of payment constitute non monetary consideration that may be treated as taxable consideration if linked to services.