The applicability of GST Provisions on vouchers has always been a matter of litigation wherein GST officials take different opinions creating ambiguity and litigations. Several questions are prevailing in the Industry to the taxability of vouchers such as:
- whether transactions in vouchers are considered a supply of goods or services;
- whether GST is leviable on the trading of vouchers by distributors or sub-distributors;
- Is GST applicable to unredeemed vouchers (breakage)?
To address the challenges faced by the trade and industry, the CBIC has issued the circular addressing various issues related to the applicability of GST provisions on vouchers vide circular No. 243/37/2024-GST dated 31st December 2024 wherein the following clarification is provided:
1. Do “transactions in vouchers” fall under the supply of goods and/or services category?
- Definition of “voucher” is given under Section 2(118) of CGST Act, 2017 which is reiterated below:
“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.”
- Accordingly, as per Section 2(118) of the CGST Act, “vouchers” are like payment instruments that create an obligation on the supplier to accept it as a consideration or part of consideration for the supply of goods or services.
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- The voucher will fall under the definition of “Money”
- The issuance of payment instruments, including pre-paid instruments, is regulated by the Reserve Bank of India (RBI) in terms of the Payment and Settlement Act, 2007.
- Pre-paid instruments (PPIs) are payment instruments that facilitate the purchase of goods or services against the value stored on such instruments.
- The pre-paid instruments can be issued as cards, wallets, and any such form/ instrument that can be used to access the PPI and to use the amount therein.
- Section 2(75) of CGST Act, 2017 defines “Money”, which includes an instrument recognized by the RBI which is used as a consideration to settle an obligation.
- Therefore, as per the combined reading of the definition of “Voucher” and “Money” given under the CGST Act, 2017, and the description of “pre-paid instruments” given by RBI, where the voucher is covered as a pre-paid instrument recognized by the RBI and is used as a consideration to settle an obligation then the voucher will fall under the definition of “money”.
- “Money” is excluded from the definition of goods and services as given under GST law.
- Therefore, the transactions in vouchers would be considered neither as a supply of goods nor as a supply of services
- Vouchers are “Actionable Claims”
- Where vouchers are not covered as a pre-paid instrument recognized by RBI and therefore, the same cannot be treated as money.
- However, the voucher will be like an obligation on the supplier to receive it as consideration or part consideration and assure the voucher holder to claim certain goods or services against such voucher.
- In such cases, the voucher can be considered as an “actionable claim” within the meaning of section 2(1) of the CGST Act.
- As per entry 6 of Schedule III of the CGST Act, an activity or transaction of actionable claims shall be treated neither as a “supply of goods” nor as a “supply of services”.
- Vouchers are covered under entry 6 of Schedule III of the CGST Act as actionable claims.
- Therefore, even in such a case, transactions in vouchers would be treated neither as a “supply of goods” nor as a “supply of services”.
Conclusion: Therefore, whether the voucher is a PPI, as recognized by the RBI, or not, the transactions in the voucher themselves cannot be considered either as a supply of goods or as a supply of services. However, the supply of underlying goods or services, for which vouchers are used as consideration or part consideration, may be taxable under GST.
2. What would be the GST treatment of transactions in vouchers by distributors/sub-distributors/ agents etc.?
The distribution of vouchers operates on the following two models:
- Where vouchers are distributed through the distributors/ sub-distributors/ dealers on a Principal-to-Principal (P2P) basis.
- Where vouchers are distributed using agents/ distributors/ sub-distributors on a commission/ fee basis.
2.1 Where vouchers are distributed on Principal-to-Principal(P2P) basis:
- In such cases, the distributor purchases a voucher from the voucher issuer at a discounted rate and subsequently sells the same to the sub-distributors, corporates, or end customers and generates revenue through a trading margin, i.e, the difference between the acquisition cost and the selling price of the vouchers.
- As per section 9 (1) of the CGST Act, GST is chargeable on the supply of goods or services.
- The transaction in vouchers is neither a supply of goods nor a supply of services, therefore, pure trading of vouchers in this case would not constitute either a supply of goods or a supply of services.
- Accordingly, no GST shall be leviable on the trading of vouchers.
2.2 Where vouchers are distributed on Commission/ Fee Basis:
- In such a scenario, the transactions between the voucher issuer and the distributors/ sub-distributors/ agents are on a principal-agency basis.
- These arrangements specify a set of obligations on agents such as marketing & promotion and other related support activities for the distribution of vouchers against a commission.
- The distributors or sub-distributors do not own the vouchers and only act as agents of the voucher issuer.
- In such cases, GST would be payable by such distributor or sub-distributor acting on the commission or fee as a supply of services to the voucher issuer.
3. What would be GST treatment of additional services such as advertisement, co-branding, etc?
There may be cases where additional services such as advertisement, co-branding, etc are provided by any person to the voucher issuer against a service fee. In such a case, charges for the supply of such additional services to the voucher issuer would be liable to GST at the applicable rate in the hands of the said service provider.
4. What would be the GST treatment of unredeemed vouchers (breakage)?
The business generally makes adjustments to unredeemed vouchers in their statement of income. The value of such unredeemed vouchers accounted for in the statement of income is called breakage.
The ambiguities is whether the amount attributed to the unredeemed voucher(breakage) can be considered as “the 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”.
As per section 9 (1) of the CGST Act, GST is leviable only on the supply of goods or services. In the case of breakage, there is no redemption of the voucher and there is no supply of underlying goods or services. Therefore, there is no supply of goods or services on account of such unredeemed vouchers (breakage). Accordingly, such an amount attributable to unredeemed vouchers (breakage) would not be taxable as per the provisions of section 9(1) of the CGST Act.
Further, Circular No. 178/10/2022-GST dated 03.08.2022 clarifies that an agreement to do or refrain from an act should not be presumed to exist and that there must be an express or implied agreement for a taxable supply to exist. The amount attributable to non-redemption of the voucher (breakage) would not constitute 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 an amount attributable to non-redemption of the voucher (breakage).
5. Conclusion
Clarification is a welcome move by the industry as it will help in clarifying the applicability of GST provisions on the issuance of vouchers. Clarification that no GST applies on the supply of vouchers on principal to principal basis will bring relief to the industry and GST on the commission fee of the sub-distributors or agents will bring clarity among GST officials and the Industry.
