TMI Blog2020 (1) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... time of issue of Own Closed PPIs by the Applicant to customers is the time of supply of goods or services warranting tax liability? - If yes, what is rate of taxes applicable for such supply of goods or services as the case may be? - HELD THAT:- n the case at hand, it is stated that the gift cards / vouchers are purchased by the customers on paying a value in money specified on the gift card / voucher. When the money is paid by the customer, such a value is loaded onto the card electronically. PPIs issued by the applicant can be redeemed against purchase of any jewellery in any of the outlets of KJIL across India. This means that when the customer of bearer of the gift card wants to pay for some jewellery in KJIL s stores, they can pay with either cash or with gift voucher - In this case, the gift voucher/ gift card is an instrument squarely covered under the definition of payment instrument under Payment and Settlement Act 2007. It is not a claim to a debt nor does it give a beneficial interest in any movable property to the bearer of the instrument. In fact, if the holder of the gift card/ voucher loses or misplaces it and is unable to produce it before the applicants stores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and Qwikcilver also supplies their services to KJIL, Kerala. The above questions pertain to these two supplies. Kalyan Jewellers, Kerala is a distinct entity from KJIL and Qwikcilver is based in Bangalore. This Advance Ruling Authority does not have Jurisdiction over the activity undertaken by these entities. - TN/52/ARA/2019 - - - Dated:- 25-11-2019 - MS. MANASA GANGOTRI KATA AND THIRU KURINJISELVAAN V.S., M.SC (AGRI.), M.B.A., MEMBER, Note: Any appeal against this Advance Ruling order shall lie before the Tamil Nadu State Appellate Authority for Advance Rulings, Chennai as under Sub-section (1) of CGST Act / TNGST Act 2017, within 30 days from the date on the ruling sought to be appealed is communicated. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act. M/s. Kalyan Jewellers India Limited 5th Cross, 100 Feet Road, Gandhipuram, Coimbatore, Tamil Nadu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars / communications issued by Reserve Bank of India or any other relevant authorities such as Issunace and Operation of Prepaid Payment Instrumets(PPI) dt 11. 10.2017 issued by RBI. 2.1. The applicant dealt with the following PPIs both in electronic/ digital and paper formats. 1. Closed System PPIs-on Its own The applicant issued these to customers on receiving the face value as per the requirement of the customer. The customer or holder can redeem these in any outlet of the applicant stores across the country at the time of purchase of jewellery. 2. Semi Closed PPIs- through third party PPI issuers- co branded PPIs The applicant has an agreement with Quick Silver Solutions Pvt Ltd (approved non - bank PPIs as authorized by RBI) where the third party issues PPIs at the retail outlet of the applicant. The issuer pays the applicant upfront an amount, called the discounted value (lower than the face value)and the third party issuer sells these to the general customer at Face Value. The general customer or holder of the PPIs can redeem these at the outlets of the applicants at Face Value against their jewellery purchase. The difference is an incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomer to purchase Jewellery items only. They are in agreement with M/s. Qwickcilver Solutions Private Limited, Bangalore, a third party online portal, to issue PPIs to Customers who can redeem it with the Applicant or any other identical outlets, which is called Semi-Closed System of Pre-Paid Instruments (PPIs). Features of three different Pre-Paid Instruments Closed System of PPI: Transactions are between only two parties. One party- issuer, issues PPIs to customer. The PPIs holder/ customer makes purchases only from issuer. There is no cash withdrawals. These PPI s cannot be utilized for third party services/ sales. The PPIs holder/ customer purchase jewels from the issuer only on redemption of PPIs, here Applicant is an issuer of PPIs to customers. Semi Closed system of PPIs: Transactions are between more than two parties. The third party issues PPIs to customers, who uses PPIs at a group of clearly identified merchant locations having a third party M/s. QwickCilver Solution based in Bangalore issues PPIs to customers who can redeem the same with the Applicant or any other outlets identified by the Applicant. Open System of PPIs: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,500 The Applicant has received the cash of ₹ 1,500/-. However, the goods have not been provided / sold to the customers, therefore the revenue cannot be recognized. The amount is credited in the Balance Sheet as Gift Voucher Liability Account. When a Gift Voucher is redeemed by a customer, the Applicant satisfies its obligation to supply the goods and its liability is extinguished. The journal entry in the ledger will be as follows. Amounting for Gift Voucher - Redemption Account Debit Credit Gift voucher liability 1,500 Sales 1,500 Total 1,500 1,500 The Applicant has supplied the goods to the customer and now the revenue is recognized. The amount of ₹ 1,500/- is transferred from the Gift Voucher Liability Account to the Revenue (Sales) Account. The Applicant has produced copies of few Gift Voucher/ Card, Ledger Account extracts for the period of March 2018 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lary, as defined under Section 17 of the Income Tax Act, 1961. PPIs are not services for the following reasons levy of Service Tax was started in 1994 on selected services, where there was no scope for the levy of Service Tax on PPIs issued. In the case of Union of India Vs. Delhi Chit Fund Association (2014) 43 GST 524 (SC) = 2014 (3) TMI 306 - SC ORDER , it was held that in a mere transaction of money or actionable claim no service was involved and no service tax leviable. In H.Anraj vs. Govt. of Tamil Nadu in AIR 1986 SC 63, 71 = 1985 (10) TMI 258 - SUPREME COURT the elements of actionable claims are framed as under:- i) Any type of debt other than a debt secured by mortgage of immovable or hypothecation or pledge. ii) Any beneficial interest in movable property not in possession. In the case of Martin Lottery Agencies Ltd Vs. Union of India (2008) 14 STT 242 (Sikkim) = 2007 (9) TMI 39 - HIGH COURT, SIKKIM , relying on M/s. Sunrise Associates Vs. Union of India (2006) = 2006 (4) TMI 118 - SUPREME COURT held that Lottery Ticket is an Actionable Claim . PPI contains two parts namely:- (i) In first par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection DPSS CO.PD.No. 1164/02.14.006/2017-18 dt 11.10.2017) issued by the Reserve Bank of India under Section 18 read with Section 10 (2) of the Payment and Settlement System Act, the following definitions relevant to the case at hand are re-produced for reference as below: Para 2.1 Issuer: Entities operating the payment systems issuing PPIs to individuals/ organisations. The money so collected is used by these entities to make payment to the merchants who are part of the acceptance arrangement and for facilitating funds transfer remittance services. Para 2.2 Holder: Individuals / organisations who obtain / purchase PPIs from the issuers and use the same for purchase of goods and services, including financial services, remittance facilities, etc., Para 2.3 Prepaid Payment Instruments (PPIs) : PPIs are payment instruments that facilitate Purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments. PPIs that can be issued in the country are classified under three types viz.(i) closed System PPIs, (ii) semi-closed System PPIs, and (iii) Open System PPIs. Para 2.4 Clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gift instruments subject to the following conditions : a) Maximum value of each Pre-Paid Gift Instruments (PPIs) shall not exceed ₹ 10000/- b) These instruments shall not be reloadable. c) Cash - out or refund or funds transfer shall not be permitted for such instruments. d) KYC details of the purchasers of such instruments shall be maintained by the PPI issuer. e) Entities shall adopt a risk based approach, duly approved by their Board, in deciding the number of such instruments which can be issued to a customer, transaction limits etc. f) The gift instruments may be revalidated (including through issuance of new instruments) as per the Board approved policy of the issuer. g) The Provisions of validity and redemption, as applicable, shall be adhered to. h) The features of such PPIs shall be clearly communicated to the PPI holder by SMS / email/ post or by any other means at the time of issuance of the PPI before the first loading of funds. Para 12 states that in some instances of e-commerce payments, PPI issuer has agreement with the digital market place / payment aggregator/ gateway. In such cases the payments made by the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o their customers, the Applicant has raised the following questions: 1. Whether the issue of Own Closed PPIs by the Applicant to customers be treated as supply of goods or supply of services as defined under the provisions of the CGST / SGST Act 2017 and rules, notifications there on. 2. If yes, is the time of issue of Own Closed PPIs by the Applicant to customers is the time of supply of goods or services warranting tax liability 3. If yes, what is rate of taxes applicable for such supply of goods or services as the case may be 5.1 From the submissions of the Applicant regarding the Own closed PPIs , it is seen that the Applicant issues closed PPIs as defined in the master circular issued by RBI. They are sold to customers on receiving the face value as per the requirement of the customer. The customer can redeem these PPIs in any outlets of KJIL across the country at the time of purchase of jewellery. Further from the accounts statements furnished, it is seen that the PPIs are named as Gift Vouchers and the amount received on sale of the vouchers is accounted under Other Current Liabilities . Once they are redeemed, they are credited to the revenue (sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SERVICES 1. Services by an employee to the employer in the course of or in relation to his employment. 2 . 6. Actionable claims, other than lottery, betting and gambling Actionable Claim is defined under Section 2(1) of the Act as (1) actionable claim shall have 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 states as: Actionable Claim means 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 movable Property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent . Voucher is defined under section 2(118) as (118) 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was discussed [11 (XIX)] and the decision [13(XVIII)] are given here for better appreciation of the intent: 11(XW). Section 12(4) (Time of supply of goods): The Hon ble Minister from West Bengal stated that the term voucher was not defined and it was not clear whether it was goods or services. The CCT, Gujarat clarified that if vouchers were given for use in a grocery store, the point of supply of goods shall be fixed through this provision. The Secretary suggested to define the term voucher in the Definitions section. The Council agreed to define the term voucher in the Definitions section. 13(XVIII). Section 12(4) (Time of supply of goods): To define the term voucher in the Definition section. From the above, it is amply clear that those instruments which satisfy the conditions of being accepted as consideration/ part consideration against purchase of specified goods and the identities of the potential suppliers are indicated in the instruments are to be considered as Vouchers for the purposes of GST. Applying the above, the PPIs under consideration are Vouchers for the purposes of GST. Further, these PPIs are gift cards supplied by the applicant either d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cases. Accordingly, if the vouchers are specific to any particular goods specified against the voucher, then the date of issue of vouchers is the time of supply of vouchers to the customer. However, as per the submissions of the applicant, in majority of cases the gift vouchers/ gift cards are redeemable against any jewellery bought and in such cases, the time of supply is the date of redemption of voucher. 5.5 In terms of explanation (iii) and (iv) to Notification No. 1/2017 - Central Tax (Rate) dt. 28-06-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods. The gift vouchers issued by the applicant are either in paper form or a plastic card which can be read electronically. The relevant entries of the Customs Tariff is given under for ease of reference: Chapter 4911 of Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e form of discs, cards or tapes. They are made using different materials (generally plastics, paper or paperboard, or metal), either magnetic in themselves or coated with a magnetic material. This group includes, for example, cassette tapes and other tapes for tape recorders, tapes for camcorders and other video recording apparatus (e.g., VHS, Hi-8 TM , mini-DV), diskettes and cards with a magnetic stripe. This group does not include magneto-optical media. (2) Smart cards (see Note 5 (b) to this Chapter), which have embedded in them one or more electronic integrated circuits a microprocessor, random access memory (RAM) or read-only memory (ROM)) in the form of chips. Smart cards may contain contacts, a magnetic stripe or an embedded antenna but do not contain any other active or passive circuit elements. The gift cards used by the applicants are usually made of plastic but can be electronically loaded as seen in the agreement with Qwikcliver and can be read electronically at the retail stores of the applicant when the customer brings them for redeeming for buying goods. Such cards could have a magnetic strip or a chipset making them classifiable under CTH 8523 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: RULING 1. The Own closed PPIs issued by the Applicant are vouchers as defined under CGST/TNGST Act 2017 and are a supply of goods under CGST/TNGST Act 2017 2. The time of supply of such gift vouchers / gift cards by the applicant to the customers shall be the date of issue of vouchers if the vouchers are specific to any particular goods specified against the voucher. If the gift vouchers/ gift cards are redeemable against any goods bought, the time of supply is the date of redemption of voucher. 3. In the case of paper based gift vouchers classifiable under CTH 4911 the applicable rate is 6% CGST as per Sl.No. 132 of Schedule II of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 and 6% SGST as per Sl.No. 132 of Schedule II of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No.62 dated 29.06.2017 as amended. In the case of gift cards classifiable under CTH 8523 the applicable rate is is 9% CGST as per Sl.No. 382 of Schedule III of the Notification No. 1/2017-C.T.(Rate) dated 28.06.2017 and 9% SGST as per Sl.No. 382 of Schedule III of Notification Ms. No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017. 4. The questions r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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