Vouchers- Concept and GST Implications Thereon

A. Concept:

Voucher in terms of clause (118) of Section 2 of Central Goods and Services Tax Act, 2017 has been defined as follows:

““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.”

In other words, voucher is any instrument that is ‘accepted as’ as consideration for procuring goods or services, containing its own terms and conditions for being used as such. Obligation to accept the voucher as consideration can be on account of the contractual terms or even by virtue of any operation of law in force.

Following are the factors to determine whether instrument is a voucher or not:

1. Legal obligation to accept as consideration for supply of goods or services to be affected in future;
2. Discounts are offered till the voucher changes hands and finally redemption is at the face value.
3. Council Directive 2016/1065 dated 27.06.2016 (“EU Council Voucher Directive”) inserted directives relating to chargeability of VAT on vouchers by amendment in “EU Council VAT Directives”. Following is relevant to note from these voucher directives:
   • It defines voucher exactly in the same words as Section 2(119) and recognizes two types of vouchers viz. ‘single-purpose voucher’ (“SPV”) and ‘multi-purpose voucher’ (“MPV”).
   • SPV: Where the VAT treatment attributable to the underlying supply of goods or services can be determined with certainty upon issuance it is considered to be SPV. In that case, VAT should be charged on each transfer. The actual handing over of the goods or the actual provision of the services in return for a SPV should not be regarded as an independent transaction.
   • MPV: Vouchers other SPV are considered as MPV. VAT is charged when the goods or services to which the voucher relates is supplied. Any prior transfer of MPV is not subject to VAT.
4. Similar to EU VAT, as per Section 35A of GST Act of Singapore read with regulations issued thereunder, vouchers are classified into Multi-Redemption Vouchers (similar to MPV of EU VAT) and Non-Multi-Redemption Voucher (similar to SPV of EU VAT)

Even though Indian GST law doesn’t specifically provide for such SPV or MPV type vouchers but the reference for the same can be found in Section 13(4) while determining time of supply.…..

B. Vouchers in the form of Pre-paid payment Instruments (“PPIs”) is ‘Money’ and thus not chargeable to GST:

Money in terms of clause (75) of Section 2 has been defined as follows:

““money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.”

It is relevant to note that “Money” is excluded from the definition of both “Goods” and “Services” and hence not chargeable to GST.

Money includes instrument recognised by RBI:

a. When used as a consideration to settle an obligation or

b. Exchange with Indian legal tender of another denomination.

One such instrument which is used as consideration to settle an obligation & are recognised by RBI are PPIs. PPIs are payment instruments that facilitate purchase of goods and services against the value stored on such instruments.

The value is already stored in PPIs at the time of issuance which facilitate purchase of goods or services. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card.

RBI issued RBI (Issuance and Operation of Prepaid Payments Instruments) Directions, 2017 (“Master Directions”) dated 11.10.2017, the purpose is to provide a framework for authorisation, regulation and supervision of entities operating payment systems for issuance of PPIs in the country.

The two types of PPIs can be issued by non-bank entities are:

Issuance of Vouchers in the nature of PPIs:

Even though it seems that the issuance of vouchers in the nature of PPIs would not be covered within the meaning of money since issuance of instrument is not settlement of obligation rather creation of an obligation, its issuance in essence is a mere transaction in money as far as issuer is concerned since money that has been received is for disbursements to merchants (in case of semi-closed payment instrument) and represents as an advance for the future supply of goods or services (in case of closed payment instrument). In the case of Union of India vs. Delhi Chit Fund Association (W.P. (C) 4512 of 2012), Hon’ble Delhi High Court held that “a mere transaction in money represents the gross value of the transaction. But what is chargeable to service tax is not the transaction in money itself since it can by no means be considered as a service” (affirmed by Hon’ble Supreme Court). Though the case pertains to service tax regime, however it is relevant to note the definition of Money under erstwhile service tax law was essentially same as under GST law. Further as per Master Directions, amount received from holders (customers) is always kept in escrow account and is used strictly only for settlement of vouchers and is not accounted for or used as income in the hands of the PPI issuer.

Redemption of Vouchers in the nature of PPIs:

Holder is the person who actually uses (redeems) PPI for purchase of goods or services. The definition of money under GST law considers instruments used as a consideration to settle an obligation as equivalent to money. It is relevant to note that obligation can be of any person and not necessarily of holder only. Therefore, redemption of PPI can be safely considered to be Money.

The definition under GST law of “Money” is an one step further to the definition of Money as was provided under Section 65B(33) of Finance Act, 1994 (erstwhile Service Tax law) which states that, ““money” means legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any such similar instrument but shall not include any currency that is held for its numismatic value”. The words “when used as a consideration to settle an obligation” are addition to the definition of money under GST law.

Supply of Goods or Services against redemption of Vouchers in the nature of PPIs:

Merchants are the ones who actually supplies goods or services against redemption of PPI. Supply of goods or services against vouchers in the nature of PPIs is chargeable to GST since voucher represents consideration for the said supply of goods or services.

The above analysis can be summed up by way of below table:

C. Vouchers not in the form of Pre-paid payment Instruments (“PPIs”):

There can be other instruments as well which qualifies the definition of voucher since there is obligation to accept it as consideration. However, these instruments does not have value stored in it and thus do not qualify to be PPIs. Also, these does not require recognition by RBI and therefore cannot be construed as Money.

D. Illustrations:

Conclusion

Taxing vouchers cannot be understood solely from the provisions contained in GST law. It is essential to look into foreign legislation and jurisprudence already available on the subject. Need of the hour is to note that in Indian context, vouchers has cross-linkage to RBI master directions apart from the relevant contractual terms. GST law becomes unique and needs unravelling by astute readers. Whether its money or it’s a voucher and merely a discount coupon needs to critically examined.

Money ought not to be confused with Voucher. Definition of Voucher does not attempt of overlap with definition of Money.

Discount coupons are neither money nor vouchers if privately issued. Discount coupons issued for cash is advance liable to tax upfront. And if it is issued without cash, then it is nothing in the eyes of law except a promise in presenti to allow a discount in future! ■