Madras HC: ‘Voucher’ is ‘actionable claim’; Modifies AAR, AAAR over taxability at the point of issuance

In the case of Kalyan Jewellers India Pvt Ltd

Madras HC modifies AAAR by clarifying that ‘Gift Voucher’ is an ‘actionable claim’ which constitutes as neither a supply of goods nor supply of services specifically mentioned in Schedule III at sl. No. 6 and consequently, assessee is not liable to pay tax;  In turn, holds that ‘Gift Voucher/Cards’ is a ‘Prepaid Instrument’ which acknowledges debt and so becomes a “debt instrument” which in case of breach (i.e. failing to allow redemption)becomes enforceable at the hands of the customer  who has a “right to approach a civil court to recover the amount paid” in terms of RBI’s Master Circular; As for when can ‘Gift Vouchers’ be taxed, HC observes that if the ‘Gift Voucher/Card’ are issued for a specified and identified goods, or for a merchandise of a particular value, tax is payable on such identified goods at the time of issuance of the ‘Gift voucher/ Card’ in view of Section 12(4)(a) of the CGST Act, 2017;  Earlier, assessee filed an advance ruling application seeking clarity on an array of issues including time of supply of Gift Vouchers or Prepaid Payment Instruments (PPIs) wherein Tamil Nadu AAAR confirming levy of GST on “Gift Voucher” held that same is neither a supply of goods nor a supply of services and simultaneously concluded that voucher would be taxable at the time of its issuance in view of Section 12 (4)(a) of the respective GST enactments; Now, assessee is assailing the GST levy on the premise that Gift Vouchers/Gift Cards are “actionable claims” falling within the purview of exclusion in Section 7(2) of the CGST Act and it is to be treated neither as a “supply of goods” nor “supply of services” or alternatively, Gift Vouchers can be taxed only at the time of actual sale i.e., at the time of redemption by the customer and at the time of its issuance; HC taking into account relevant definitions of “document”, “instrument” in terms of he Transfer of Property Act, 1882, the Indian Stamp Act, 1899, “voucher”, “actionable claim”  in terms of GST Act, RBI’s Master Direction, infers that “Gift Voucher/Card” is therefore an “actionable claim” within the meaning of Section 2(1) of the CGST Act, 2017 read with Section 3 of the Transfer of Property Act, 1882 and specified in Schedule III of the Act – As per Section 7(2) of the Act, activities or transactions specified in Schedule III shall be treated neither as supply of goods nor supply of services”; Interpreting time of supply of ‘Gift Vouchers’ in the light of section 12 (4) of the CGST Act, HC explains how question of taxing a future supply of an unspecified goods or service which is to take place on a future date is not contemplated under the Scheme of GST Act; Thus, rules that tax is payable on  identified goods at the time of issuance of the ‘Gift voucher’; In that vein, HC quips that AAR is “not fully correct” when it says that time of supply of the ‘Gift Vouchers/ Cards’shall be the date of issuance of such vouchers irrespective of the nature of transaction and rate of tax is that applicable to that of the goods; Accordingly, modifies to the extent that voucher per se is neither a goods or a service in view of Section 7 r/w Schedule III to GST Act and assessee is not liable to pay tax on ‘Gift Voucher/Card’ in view of in view of Section 7(2)(a) r/w Sl.No.6 to Schedule III of GST Act and partly allows writ petition; HC on AAAR’s ruling quips that after determining that “voucher” is an “actionable claim” and thus neither a supply of goods nor a supply service “ultimate conclusion arrived is not correct” ; From this perspective, HC notes that in the assessee’s ‘Gift Voucher/Card’ i.e. Qwickcilver card there is a restrictive clause which is “contrary to the RBI’s Master Directions” that the amount is not refundable which is not binding on the customer; In that vein, HC points out the dichotomy between ‘Gift Voucher’ issued for unspecified goods and for specified goods highlighting that “there is a sale of an identified merchandise of a particular value without actual delivery of identified merchandise. Consideration is either paid in advance or paid over a period of time or later”; Thus, HC asserts that if the ‘Gift Voucher’ is for a specified item of jewellery of specified value, tax is payable at the time of its issuance, as there is supply u/s 7, on the other hand, if there is no supply i.e. no transfer, time of supply will get postponed to the actual time of redemption of the “voucher” to a future date of sale of merchandise or such goods when such Gift Voucher/Card is presented by the customer; Adding to this, HC clarifies that ‘Gift Voucher’s can be set off against the amount payable; In conclusion, holds that ‘Gift Voucher’ when issued for a specified and identified goods, or for a merchandise of a particular value, tax is payable at the time of issuance of the same, as there is supply of an identified good in view of Section 12(4)(a) of the GST Act hence, such transactions are “supply”: Madras HC