Whether “transactions in vouchers” falls under the category of supply of goods and/or services?

whether GST is leviable on trading of vouchers by distributor/sub-distributor?

whether unredeemed vouchers (breakage) are taxable?

For understanding all about vouchers, we have to analyse following definitions. For complete definition, please click on hyperlink

(i)

Section 2(52) - "goods"

(ii)

Section 2(102) – services

(iv)

Section 2(75) ― "money"

(v)

Section 2(1) – “actionable claim”

(vi)

Section 2(102A) ― “specified actionable claim”

Voucher may be treated as “money” or “actionable claim” based on below mentioned definition

3.3

The issuance of pre-paid instruments, in India is regulated by RBI in terms of the Payment and Settlement Act, 2007, RBI’s Master Directions and the relevant Notifications/ Circulars/ issued by the RBI from time to time.

PPIs are payment instruments that facilitate purchase of goods and/or services for the value mentioned on it.

The value mentioned on PPIs represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card.

PPIs can be issued as cards, wallets and in any such form/ instrument which can be used to access the PPI and to use the amount therein.

As per section 2(75) “money” includes an instrument recognized by the RBI which is used as a consideration to settle an obligation.

Hence we can conclude that PPIs comes under definition of money

For complete guide on definition of money, please click on hyperlink.

Definition of Voucher Section 2(118)

“voucher” means an instrument

where there is an obligation to accept it as consideration or part consideration for a supply of goods or/and services and

where the goods or/and services 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;

3.2

Voucher treated as PPIs

From above definition of voucher, it emerges that

“voucher” may be in nature of payment instrument

which creates an obligation on the supplier to accept it as a consideration or part consideration for the supply of goods and/or services.

3.5

Voucher treated as Actionable claim

In cases, where voucher is not covered as a PPIs and hence, cannot be treated as money,

the voucher will be in nature of an obligation on the supplier to receive it as consideration or part consideration and assure the beneficiary/voucher holder to claim certain goods and/or services as specified on the voucher or in the related documents.

In such cases, the voucher can be considered as an "actionable claim" within the meaning of section 2(1) of the CGST Act, read with section 3 of the Transfer of Property Act, 1882.

3.4

On combined reading of the definition of “voucher”, “money” and “pre-paid instruments”

it emerges that where the voucher is a pre-paid instrument recognized by the RBI and is used as a consideration to settle an obligation, then in such cases, the voucher will fall under the definition of “money”.

Since “money” is excluded from the definition of goods and services as provided in section 2(52) and section 2(102) of the CGST Act respectively and voucher is treated as money, hence the transactions in voucher shall not be treated as supply under GST.

If voucher comes under definition of money due to its nature, then transaction in voucher shall not be treated as supply of goods or services.

3.6

Further, as per entry 6 of Schedule III of CGST Act, an activity or transactions of actionable claims, other than specified actionable claims, is to be treated neither as a "supply of goods" nor as a "supply of services”.

Section 2(102A) of CGST Act, specified actionable claim means the actionable claim involved in or by way of betting, casinos, gambling, horse racing, lottery or online money gaming.

As vouchers are not covered under definition of specified actionable claim, it appears that they are covered in entry 6 of Schedule III of CGST Act as actionable claims, other than specified actionable claims.

Therefore, it appears that even in such a case, transaction in vouchers would be treated neither as a "supply of goods" nor as a "supply of services".

3.7

It is clarified that irrespective of whether voucher is covered as a PPIs or actionable claim,

the voucher is just an instrument which creates an obligation on the supplier to accept it as consideration or part consideration and

the transactions in voucher themselves cannot be considered either as a supply of goods or as a supply of services.

However, supply of underlying goods and/or services, for which vouchers are used as consideration or part consideration, may be taxable under GST.

4.1

There are primarily two models for distribution of vouchers through distributors/ sub distributors/ agents, etc.

(i) Where vouchers are distributed through the distributors/ sub-distributors/ dealers on Principal-to-Principal (P2P) basis.

(ii) Where vouchers are distributed using agents/ distributors/ sub-distributors on commission/ fee basis.

4.2

In such cases, the distributor/ dealer purchases voucher from the voucher issuer typically at a discounted rate and subsequently sells the same to the sub-distributors, corporates or end customers and generate revenue through a trading margin, which is a difference between the acquisition cost and the selling price of the vouchers by the said distributor/ dealer. In such cases, distributors/ dealers (including subdistributors) own the vouchers and operate autonomously with full control over the process from purchase to the final sale of the vouchers to the end user.

4.2.1

As per section 9(1) of CGST Act, GST is chargeable on the supply of goods and/or services.

As the transaction in vouchers is neither supply of goods nor supply of services, therefore, pure trading of vouchers in this case would not constitute either supply of goods or supply of services. Accordingly, such trading of vouchers would not be leviable to GST as per section 9(1) of CGST Act.

4.3

In such cases, the transactions between the voucher issuer and the distributors/ sub-distributors/ agents are on principal-agency basis. These arrangements, as per contract/agreement between distributor/sub-distributor/agents and the voucher issuer may specify a set of obligations on such agents such as marketing & promotion and other related support activities for distribution of vouchers against a commission/fee or any other amount by whatever name called, for such purpose.

In such cases, distributors/sub-distributors/agents do not operate autonomously, do not own the vouchers and only act as agent of the voucher issuer. In such cases, GST would be payable by such distributor/sub-distributor/agent, acting as an agent of the voucher issuer, on the commission/fee or any other amount by whatever name called, for such purpose, as a supply of services to the voucher issuer.

5.1

There may be cases where additional services such as advertisement, co-branding, customization services, technology support services, customer support services, etc. are provided by either the distributor/ sub-distributor or by another person to the voucher issuer against a service fee/ service charge/ affiliate charge or any other amount, by whatever name called, as per contract/agreement between such service provider and the service recipient (voucher issuer). In such a case, the said service fee/ service charge/ affiliate charge or other amount for supply of such additional services to the voucher issuer as per the terms of contract/agreement, would be liable to GST at the applicable rate in the hands of the said service provider.

6.1

Sometimes, vouchers remain unused/ unredeemed at the end of their expiry period. In such cases, the businesses generally make book adjustments and account the said amount on account of unredeemed vouchers in their statement of income. The value of such unredeemed vouchers accounted for in the statement of income is called breakage. There are ambiguities and doubts in respect of GST treatment of such breakage. Also, doubts are raised whether the amount attributed to the unredeemed voucher(breakage) can be considered as “monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”.

6.2

As per section 9(1) of the CGST Act, GST is leviable only on the supply of goods and/or services.

In the case of breakage, there is no redemption of voucher and there is no supply of underlying goods and/or services. Therefore, there is no supply of goods and/or services on account of such unredeemed vouchers (breakage).

Also, “consideration” under GST is defined under section 2(31) of CGST Act, in relation to the supply of goods or services or both.

As there is no underlying supply of goods and/or services in case of non-redemption of vouchers by the customer, the amount retained for unredeemed vouchers by the voucher issuer cannot be construed as consideration for any supply. Accordingly, such amount attributable to unredeemed vouchers (breakage) would not be taxable as per the provisions of section 9(1) of CGST Act.

6.3

Further, Circular No. 178/10/2022-GST dated 03.08.2022 clarifies that agreement to do or refrain from an act should not be presumed to exist, and that there must be an express or implied agreement, oral or written, to do or abstain from doing something against payment of consideration, for a taxable supply to exist. Considering the principle laid out in the said circular, it emerges that where the voucher is issued for the purpose of redemption in respect of a supply of goods and/or services and there is no express or implied agreement, oral or written, between the issuer of voucher and redeemer for payment of any amount or charges by the redeemer to the voucher issuer in case of non-redemption of the voucher, it cannot be considered that non-redemption of voucher by the redeemer tantamounts to supply of services. Therefore, it appears that the amount attributable to non-redemption of voucher (breakage) would not constitute as a “monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”. Therefore, no GST appears to be payable on such amount attributable to non-redemption of voucher (breakage).