The Karnataka High Court recently quashed the AAR and AAAR rulings on applicability of Goods and Services Tax (GST) on issuance of vouchers. The Court held that no GST was applicable on the vouchers in the nature of prepaid payment instruments issued by the assessee.
The company in question procures pre-paid payment instruments (gift vouchers, cash back vouchers, and e-vouchers) from issuers and supplies them to its clients with a specified face value. The clients use these vouchers as incentives for employees or for promotional purposes for purchasing goods or services.
The Karnataka AAR and AAAR had ruled that the vouchers traded by the company are goods, but the Karnataka High Court deemed the transaction to be the procurement and delivery of printed forms, similar to pre-deposit. As such, the vouchers are neither goods nor services and cannot be taxed.
For the petitioner, Shivadass argued that, the voucher, when accepted shall be consideration or part-consideration for supply of goods or services or both and the voucher itself cannot be treated as goods or services.
As vouchers are considered as instruments, they would fall under the definition of ‘money’, defined under Central Goods and Services Tax Act, 2017, the counsel further stated.
Jeevan J Neeralgi, AGA for the Revenue submitted that as the assessee would be knowing precisely what is offered to the customer, it cannot be held that goods are not identifiable.
Answering whether vouchers themselves are chargeable to tax at the time of supply or chargeable when goods and services are redeemed, the Karnataka High Court Division Bench of Justice P S Dinesh Kumar and Justice T G Shivashankare Gowda observed that the issuance of vouchers is similar to pre-deposit and not supply of goods or services.
In the light of the above observation, it was held that prepaid payment instrument (PPI) vouchers are neither goods nor services and therefore cannot be taxed.
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