Gift vouchers are not ‘goods’ but ‘instruments of consideration’, rules Tamil Nadu AAAR

Shishir Sinha New Delhi | Updated on April 04, 2021

Gift vouchers or pre-paid instruments are neither goods nor services, but instruments of consideration, an Appellate Authority for Advance Ruling (AAAR) has held in the matter involving Kalyan Jewellers.

The Tamil Nadu AAAR, in its recent ruling, clarified that GST is not applicable on the supply of vouchers, but on the underlying supply of goods/services at the time of redemption.

Sales promotion

Many retail brands such as Shoppers’ Stop, Amazon, and Croma, have disputed tax applicability during and even before the GST regime.

The applicant, Kalyan Jewellers, introduced the facility of different types of pre-paid instruments (PPI) as a part of sales promotion. These are called ‘Gift Vouchers/Gift Cards’ in trade parlance.

The company approached the Authority for Advance Ruling seeking a ruling on whether PPIs are to be treated as supply of goods/services. And, if yes, then should the time of issue of PPIs be taken as the time of supply of goods/services and what should be the applicable GST rate.

The AAR held that vouchers constitute ‘supply of goods.’ It said that in case of paper-based gift vouchers, 12 per cent GST is to be levied, while for gift cards with a magnetic strip or a chipset, the rate would be 18 per cent Aggrieved by this ruling the applicant moved the AAAR.

The AAAR held that “Voucher by GST law is recognised as an instrument of consideration (non-monetary form) for future supply.” In other words, the classification will depend upon the nature of goods/services supplied in exchange for the voucher issued earlier.

‘Grey area’

According to Abhishek Jain, Tax Partner at EY India, taxability of vouchers has always been a grey area, both under the pre- and post-GST regime. The AAR ruling that vouchers should be taxed at 12 or 18 per cent depending upon whether they are paper based or magnetic strip/chipset based, added to the confusion.

However, the “AAAR rightly overturned this to say that the supply of voucher itself is not taxable and what is taxed is the underlying goods/services being supplied and hence the GST rates to be levied will also depend on the said goods/services. This ruling is welcome and has provided clarity to the industry on the taxability of vouchers,” he said.

Experts feel this ruling has tried to clear the grey area and expected to be quoted in various similar cases.

Published on April 04, 2021

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