[Opinion] GST on Vouchers, Gift Cards & Loyalty Programs

CA Manish Raj Dhandharia – [2024] 162 taxmann.com 619 (Article)

Vouchers, Gift Cards & GST

Gift cards and vouchers have become a popular medium to gift close and distant people. These vouchers and gift cards also benefit the companies by guaranteeing purchases by their customers as against redemption of these vouchers. It has turned out to be a lucrative way of marketing for companies. It is plausible that it will be aggressively used by more companies in the near future. It is, therefore, essential to analyse the GST implications in case of issuance and redemption of these vouchers.

Prior to that, it is important to understand the different kinds of vouchers since the implications under the GST law differ with each kind. To begin with, European Union (EU) VAT Directives recognise two types of vouchers namely single-purpose vouchers and multi-purpose vouchers. Single-purpose vouchers are the ones where the vouchers can be used only for a specific supply which is identifiable at the time of issuance of the voucher itself. On the contrary, multi-purpose vouchers can be used for supply of more than one good or service and hence, the supply is identifiable only when the voucher is actually redeemed. Whether single-purpose or multi-purpose vouchers, they can be further bifurcated into vouchers sold for a consideration (including gift cards) and vouchers given free of cost.

A precise example of a single-purpose voucher would be: suppose the voucher issued by an airline company can only be used for purchase of domestic flight tickets. In this case, the supply is already identifiable at the time of issuance of voucher. However, in a case where a travel agency platform providing a wide range of services, sells its voucher to Mr. X to purchase any of its products from its website, it shall be a multi-purpose voucher as it can be redeemed for a wide range of goods and/ or services like purchasing flight tickets or booking hotel rooms or availing any other transport/accommodation facility, not identifiable at the time of issue of the voucher.

Coming to the legal perspective, on a bare reading of Section 2(118) of CGST Act, 2017, one can observe that:

“voucher means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument”.

[Emphasis added]

On perusal of the above definition, it is safe to infer that all the coupons, gift cards and vouchers fall under the definition of voucher where such voucher acts as an instrument of money and can be accepted as a valid form of consideration.

Classification and Supply of Vouchers and Gift Cards

The GST Law nowhere stipulates if the supply of a voucher shall be one of goods or services and how it shall be classified. Yet, the same is important to identify the tax incident and whether it forms a valid supply. Though the above discussion leads us to believe that a voucher is merely an instrument of consideration, however, one may also argue that it is an actionable claim since it enables the holder of a voucher a right to claim certain goods or services against the voucher. Both these views have been discussed hereafter.

Supply of Vouchers as Actionable Claims

As regards the contention of vouchers to be considered as actionable claim, one needs to refer to the definition of actionable claim in Section 2(1) of the CGST Act, 2017. The definition makes a reference to Section 3 of the Transfer of Property Act, 1882 which states as follows:

“actionable claim means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;”.

Hence, any debt or interest in movable property, whether existent, accruing, conditional or contingent which creates a right in favour of claimant, is an actionable claim. The contention, however, does not seem to be acceptable for the reason that the rule cannot be made generally applicable for all cases as there may not necessarily be any interest in movable property or hypothecation in immovable property (cases involving supply of services).

Supply of Vouchers as Instruments of Money

Another contention relates to treating the supply of vouchers and gift cards as a mere instrument of money, thereby not being liable to GST. In Sodexo SVC India (P.) Ltd. v. State of Maharashtra [2015] 64 taxmann.com 396/[2016] 53 GST 293/2016 (331) E.L.T. 23 (SC), the Hon’ble Supreme Court held that vouchers are nothing more than pre-paid instruments which cannot be considered as goods. A similar view was also taken by the Tamil Nadu Appellate Authority for Advance Ruling in Kalyan Jewellers India Ltd., In re [2021] 127 taxmann.com 37/ 86 GST 472/2021 (50) G.S.T.L. 96 (AAAR – Tamilnadu), wherein it was opined that vouchers could not be classified into goods or services as they are only instruments of consideration and it is only the underlying goods or services which will be leviable to GST. Lastly, in Premier Sales Promotion Pvt. Ltd. v. Union of India [2023] 147 taxmann.com 85/2023 (70) GSTL 345/[2023] 96 GST 363 (Kar.), the Hon’ble Karnataka High Court once again affirmed that vouchers do not constitute a supply of goods or services and they are merely pre-deposit for the purchase of goods or services.

Further, RBI’s Master Directions on Prepaid Payment Instruments (PPIs) dated August 27, 2021 mentions about certain pre-paid instruments (PPI). These instruments of money facilitate purchase of goods and services and have been trifurcated as follows:

1. Closed System PPI – Instruments issued by a non-banking entity for purchase of goods or services from that entity itself – Example: Metro rail card
2. Semi-closed System PPI – Issued by a banking or non-banking entity for purchase of any goods or services, with prior approval from RBI – Example: Paytm wallet
3. Open System PPI – Issued by a banking entity for purchase of any goods or services and cash withdrawal – Example: Debit cards issued by banks

Our scope is only limited to closed system PPIs and semi-closed system PPIs as it is apparent that the players in the travel and tourism industry will not be permitted to issue open system PPIs.

A combined reading of the RBI Master Directions with the above-mentioned cases reveals that vouchers and gift cards will also fall under the category of PPIs as they are in the nature of consideration used for facilitation of purchase of goods or services.

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