Vouchers: Decoding its nature, and GST implications.

 Vouchers: Decoding its nature, and GST implications.

 

GST as we know is a consumption-based tax. Every time a supply is made, it is to be taxed. In the background of the pre-GST taxes, Indirect taxes are levied on majorly 3 events. It could be manufacture, sale, or service. It is also a common understanding that for any supply to be taxed, the subject of such supply must be either a good or a service.

Now, vouchers- as we see in numerous forms and types, be it like a gift card, a discount coupon, a cashback coupon, a membership card, or anything of a similar nature, have caused quite confusion, as regards their nature. What is it? is it good? Is it a service? Is it a payment instrument like money? This article aims to break down the question and ascertain its nature, and the GST implications following it.

Now the most common transaction involving the sale of vouchers is that the main supplier, i.e., the affiliates, distributes them to voucher dealers and distributors, who either supply it further to customers, or employers who supply such vouchers as employment benefits or, or use it for self-consumption.

The premise here is that these vouchers play different roles in each transaction. There should be no doubt that between the employees or clients and the brand stores, it acts as a mode of consideration. But what causes mind-wrecking confusion is that between the affiliates and distributor, or between the distributor and the clients, what nature does the supply of vouchers take.

The reasoning held by multiple authorities and experts that a voucher is a pre-paid instrument used as a mode of consideration against the supply of goods or services is correct when the transaction is between the clients and affiliates, where the client uses the voucher as a mode of payment in exchange of the goods and services provided. But when such supply is being made between the dealers and the purchasers or between the affiliates and the dealers, it is only logical to say that, here the voucher is either a good or a service.

It is a good, when being sold by the distributor to the client, and could be a service when being sold from an affiliate to a distributor. It ultimately depends on the intention of the parties, as to what transaction they are carrying out.

Following this, one more question that arises is when is a voucher supposed to be taxed?

Now, most opinions and authorities classify vouchers into two kinds- one where the good or service against which it is redeemable is definite, as regards its supplier and quantity, and the other when such details of supply and supplier are uncertain. The former could be exemplified by a coupon for a particular item, sold by a particular seller, for a particular price. The latter could be illustrated by a shopper’s stop gift card.

What this tries to say is that a voucher by itself holds no value, and holds only so much value when related to the goods or services it intends to purchase. For example, a hundred Rs. A coupon by itself is not taxable, but becomes taxable only when a certain good or service is specified, which could be considered supply, and such good or service is the actual supply that attracts tax.

Meanwhile, in the case of an open system voucher like a gift card, what good or service would be availed is uncertain, and hence, taxable supply is also uncertain. And hence, even if it were to be taxed, what rate should it be taxed at, would remain a question. Hence, the rate of GST of the good or service procured shall be the amount of tax, and such supply shall be the event of taxation.

Through this logic, if seen, vouchers are just symbols, and not really any good or service, and are just a mode of consideration. Although, it could be argued that while initial supply could be a commodity or a service, since a person purchases a voucher with some motive of profit, like discounts, or other benefits.

 

One still cannot confidently say that the nature of such vouchers is absolutely certain. Owing to all such confusion, currently, the supply of a voucher does not attract GST, although there is a specified rate of tax for the category of vouchers, which to my mind is perplexing. One cannot say that a voucher is just a paper in exchange for the value written on its surface, there definitely is an underlying transaction.

 

 

Disclaimer: This article is not a description or collection of opinions given by judicial authorities, but the author’s individual attempt to break down each component of the issue, in light of prevailing judicial opinion.