VOUCHERS ARE GOODS AND NOT ‘ACTIONABLE CLAIMS’

[Mr. M. GOVINDARAJAN]

Voucher

The term ‘voucher’ is defined under section 2(118) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) as an instrument where there is an obligation to accept it a consideration or part of consideration for a supply of 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.

The vouchers are payment instruments which facilitate purchase of goods or services against the value stored in such instruments.  They are consideration in full or part for the goods or services or both to be supplied at the time of redemption of the voucher by the beneficiary.

The issue of payment instruments is regulated by the Reserve Bank of India (‘RBI’ for short) in terms of the Payment and Settlement Systems Act, 2007 and the guidelines issued there under.  The RBI classifies prepaid payment instruments (PPI) into three categories-

• Closed system PPIs;
• Semi-closed system PPIs;
• Open system PPIs.

Open system PPIs are only issued by banks.    PPIs may be issued as cards, wallets and any such form or instrument which can be used to access PPI and to use the amount therein.  A maximum of Rs.1,00,000/- is stipulated for the total amount loaded into a PPI during one financial year.  There is no separate limit on the purchase of goods and services using PPIs.

Actionable claim

Section 2(1) of the Act defines the expression ‘Actionable Claim’ as having the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882.  Section 3 of the Transfer of Property Act, 1882 defines the said expression as a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in moveable property not in possession either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds of relief whether such debt or beneficial interest be existent, accruing or conditional or contingent.

From the above definition it can be inferred the term ‘actionable claim’ has two limbs.  The first limb is that it is a claim t any unsecured debt. The second limb is about claim to beneficial interest in movable properties not in actual or constructive possession of the claimant which shall be recognized as affording grounds of relief by a Civil Court.  These two categories of claims can be existent, future, contingent or conditional.  Therefore, actionable claim is an intangible movable property.

Issue

The issue to be discussed in this article is as to whether the vouchers are goods or actionable claim for the purpose of classification and taxation under GST law.  Some information about vouchers and actionable claims are given in the first two paras of this article.  The Appellate Authority for Advance Ruling (‘Authority’ for short), Karnataka held that vouchers are goods and not actionable claims.  The related case law is discussed in the next para.

Advance Ruling

IN RE: PREMIER SALES PROMOTION PVT. LTD. [2021 (12) TMI 1299 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNARAKA] the appellant is in the business of providing marketing services in the area of sourcing and supply of E-vouchers having a pre defined value.  The appellant undertakes to procure several types of vouchers such as gift vouchers, cash back vouchers and open vouchers which are redeemable at e-specified merchants.  The clients issue such vouchers to their customers.  They can redeem the vouchers at any of the specified merchants  who will agree to accept the vouchers as consideration for goods or services supplied to them. 

The appellant file an application before the Authority for Advance Ruling seeking ruling on the following questions-

• Whether the vouchers, themselves, or the act of supplying them is taxable, and at what stage, for each of the three categories of transactions undertaken by the applicant?
• If the answer to the above is in affirmative, what would be the rate of tax at which this would be taxable i.e., what category would this be taxed under?

The Authority for Advance Ruling vide their order dated 30.07.2021 ruled as under-

• The supply of vouchers is taxable and the time of supply in all three cases would be governed by Section 12(5) of the Act.
• The rate of tax on the supply of vouchers is 18% GST a per entry No. 453 of Schedule III Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017.

The Authority for Advance Ruling held that the payment instruments su8ppied by the applicant to their clients cannot be covered under the definition of money at the time supplying them and they take on the color of money only when it is used for the payment of a consideration for the supply.

Being aggrieved by the ruling of the Authority for Advance Ruling the appellant filed the present appeal before the Authority. 

The appellant submitted the following before the Authority-

• The vouchers are instruments which are redeemable at their face value for the goods or services or both to be supplied by the specific merchant or the issuer of the voucher itself.
• Such instruments which enable payments to be effected between a payer and a beneficiary are governed by the Payment and Settlement Systems Act, 2007.
• The PPI issued by the appellant would fall in the semi-close system category wherein a third party issues the vouchers which can be redeemed by the beneficiary at a specific group of merchant locations which have a specific contract with the issuer to accept these instruments for payments.
• It is only a transaction in money and not classifiable under goods or services which are subject to GST laws.
• It is fallacious to hold that the vouchers themselves are goods and subject to levy of GST.
• The Authority for Advance Ruling held that the consideration itself is goods and liable to tax.
• The Authority for Advance Ruling failed to recognize the fact that the supply of vouchers involves the obligation to supply certain goods or services at a larger stage, as per the stipulation of Reserve Bank of India guidelines since inception of the contract entered into between the appellant and its customers.
• The Authority for Advance Ruling admits that the vouchers are instruments of payment, then they ought to fall within the definition of money which is outside the purview of the GST.
• The voucher being defined as an instrument where there is an obligation to accept it as consideration for supply of goods or services to be supplied to the beneficiary, is an actionable claim.
• The Supreme Court in SUNRISE ASSOCIATES VERSUS GOVT. OF NCT OF DELHI & ORS. [2006 (4) TMI 118 - SUPREME COURT] held that the sale of lottery tickets does not amount to sale of goods but at the most a transfer of actionable claim.  The voucher is akin to the lottery ticket.
• When the voucher is treated as actionable claim then the transactions of actionable claims are neither supply of goods nor supply of services of Sl. No. 6 of Schedule III of the Act.
• The Supreme Court in SODEXO SVC INDIA PRIVATE LIMITED VERSUS STATE OF MAHARASHTRA & OTHERS [2015 (12) TMI 1041 - SUPREME COURT] held that the vouchers are not goods.  The rejection of the ratio laid down by Supreme Court on erroneous grounds and assumptions amounts to breach of judicial discipline.
• The Tamil Nadu Appellate Authority for Advance Ruling IN RE: M/S. KALYAN JEWELLERS INDIA LIMITED 2021 (4) TMI 885 - APPELLATE AUTHORITY FOR ADVANCE RULING, TAMILNADU, held that since voucher is only instrument of consideration and not of goods or services, the same is not classifiable separately but only the supply associated with the voucher is classifiable according to the nature of goods or services supplied in exchange of the voucher earlier issued to the customer.
• The appellant is not the issuer of the voucher and is also not authorized by the Reserve Bank of India to issue any voucher.  The appellant is trading in the vouchers issued by the issuer.

Since the vouchers are not classifiable as goods or services by virtue of them being simply payment instruments or consideration for the supply of goods or services at a future date, the appellant prayed that the vouchers are not liable to tax under GST and the impugned ruling may be set aside.

The Authority has gone through the entire case records and considered the submissions made by the appellant.  The Authority observed that the appellant is not the issuer of the voucher and also not authorized by RBI to issue vouchers, but is the third party who buys and sells the vouchers.  The Authority has to examine as to whether the vouchers are in the nature of goods.

The Authority observed that on a conjoint reading of Section 2(52) defining the term ‘goods’, Section 2(102) defining the term ‘services’ and Section 7 defining the term supply, that it is reasonable that money has been kept out GST.  Therefore any transaction in money does not qualify as a supply.  However any service fee or by whatever name the same may be called for use of various forms of accepted legal tender will be subjected to GST.  The vouchers are payment instruments recognized by RBI. 

The Authority is fully agreement with the findings of the Authority for Advance Ruling which held that the vouchers are not used by the appellant to settle an obligation and hence cannot be considered as money.  The settlement of the obligation occurs at the time when the ultimate beneficiary uses the voucher to purchase goods and/or services.  Therefore the Authority held that the vouchers in the hands of the appellant cannot be called as money.

The Authority observed that the appellant purchases vouchers by paying a consideration.  The same have been sold to the consumers at the face value of the vouchers.  The vouchers have thus both a value and an ownership and ownership get transferred from the person who first purchases the voucher from the issuer to the ultimate beneficiary who redeems the voucher.  The Authority, therefore, held that the vouchers qualify to be considered as moveable property and hence they are to be considered as ‘goods’.

The Authority then considered the contention of the appellant that the vouchers are in the nature of actionable claim.  The Authority analyzed the definition of ‘actionable claim’ under the Act and also under the Transfer of Property Act.  The right of a person (claimant) to take possession of movable property from another person is actionable claim of that person, if the claimant has a beneficial interest in the movable property.  The claim must be of certain movable property and be in possession of the other person at the time of claim.  In the case of vouchers it is a movable property and hence constitutes goods.  However the voucher is in the possession of the claimant at the time of the claim and hence it cannot be considered as actionable claim.

The Authority upheld the findings of the Authority for Advance Ruling and held that the vouchers traded by the appellant are goods and not actionable claims.