Submission highlighting issues regarding taxability of gift cards/ vouchers and trade margins vis-à-vis purchase and sale of gift cards/ vouchers

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Submission highlighting issues regarding taxability of gift cards/ vouchers and trade margins vis-à-vis purchase and sale of gift cards/ vouchers

Tejasvi

@tejasvi

August 10, 2022

Public Policy

258

We have made a submission to Central Board of Indirect Taxes (CBIC) highlighting issues being faced by our Industry as a result of ongoing investigations pursuant to the advance ruling pronounced on the taxability of vouchers by the Appellate Authority for Advance Rulings (AAAR), Karnataka in the case of M/s Premier Sales Promotion Pvt. Ltd. These investigations are mostly being initiated (against taxpayers located across the country) and pursued by the DGGI.

We understand that notices and summons have been issued by the DGGI Zonal units seeking clarifications and details with respect to transactions effected in respect of gift cards/ vouchers. The companies have been co-operative in submitting the documents and providing clarifications pertaining to the transactions in gift cards/ vouchers. Despite submission of documents and clarifications afforded, senior executives of the companies are repeatedly being called upon to appear before the officer(s).

This matter is sub-judice since M/s Premier Sales Promotion Pvt. Ltd has filed a writ petition in the Honourable High Court of Karnataka on taxability of gift card / voucher. It is important to note that in the Order of the AAAR, Tamil Nadu in the case of M/s Kalyan Jewellers India Ltd, it was held that vouchers/ Pre-Paid Instruments (PPIs) / gift cards are neither goods nor services but are “a means / instrument for payment of consideration”.

This is an Industry wide issue and we have made various representations on the need for clarity on taxability of gift cards/ vouchers per se under GST (where the underlying supply is not identifiable at the time of issuance) as well as the trade margins. We understand that CBIC is looking into the matter and necessary clarification is expected shortly.

However, in the interim, the challenge at the ground level is that DGGI zonal units & investigating authorities continue to insist the companies to discharge GST on trade margin in respect of transactions in gift cards/ vouchers. It is important to note that the Honourable Supreme Court in the case of Sodexo SVC India Pvt. Ltd. v. State of Maharashtra has categorically held that food vouchers given to employees are merely “payment instruments” and not ‘goods’ and they become taxable only when they are redeemed.

Technical analysis of the GST position

Given that gift cards/ vouchers have inherent value attributable, the same qualifies to be a payment instrument which is recognised by the Reserve bank of India (RBI) to accept and accordingly, the same is classifiable as “money” in terms of S. 2(75) of Central Goods and Services Tax Act, 2017 (CGST Act).

Gift cards/ vouchers, being money, are neither “goods” nor “services so as to attract GST on distribution of the same.

S. 12(4) and S. 13(4) of CGST Act provides time of supply in respect of vouchers. Relevant extract is as follows:

S. 12 (4): Time of supply of goods

In case of supply of vouchers by a supplier, the time of supply shall be—

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

S. 13(4) Time of supply of services

In case of supply of vouchers by a supplier, the time of supply shall be-

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases

Accordingly, in case of vouchers, wherein supply of goods/ services is identifiable at the point of issuance of vouchers, GST shall be payable at the time of issuance of voucher at the rate of underlying identified supply of goods or services in terms of S. 12 and 13 basis the goods/ services being redeemed. Where that is not the case, no GST can be levied. Trade margin vis-à-vis the purchase and sale of such gift cards / vouchers shall also not be leviable to GST as it is merely a discount which is received by the Company on the bulk purchase of gift cards / vouchers from the issuer, as is authorised by RBI.

Taxing the trade margin at the time of issuance of gift card / voucher would result in double payment of tax as taxes on the part value (to the extent of trade margin) would be then paid both at the time of issuance of gift card / voucher and redemption of gift card / voucher. We have requested the officials that any decision on the taxability of trade margins, contrary to the industry practice, should only have a prospective effect and taxes on the same cannot be levied retrospectively. This would anyway need a change in law.

We have also requested the officials to give instructions to concerned officers for putting on hold investigations, given that the matter is sub-judice and more importantly, under consideration by the Policy Wing for a clarification. The ramifications of raising a demand would be pre-mature and would add to unnecessary litigation and long drawn disputes.

Further, the recent trend of summons on CEO/ CFO/ Directors and Senior Executives be addressed through issuance of SOP. Appearance of senior officials should not be insisted upon especially, where:

i) Fact submission is happening on time;

ii) Matter is technical in nature and involves interpretational issues in which case a written submission with documents/ information is better suited.

We hope you will find the update useful. We will keep you posted on further developments in this regard.

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Tejasvi

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