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GIFT CARDS AND VOUCHERS INCLUDING PRE-PAID INSTRUMENTS

Chapter 14

Gift Cards & Vouchers including Pre-paid instruments

14.1 INTRODUCTION
In the modern times, pre-paid instruments and gift cards are quite popular, due to inherent flexibility
offered by these instruments. A person or a business instead of offering a select gift may opt to issue a
gift card/voucher of a pre-determined value, which can be used by the receiver to redeem against a
variety of goods and services within the validity period of the said instruments. These Vouchers and Gift
cards are essentially an alternate payment instruments which are redeemable against supply of goods or
services. In the present chapter, the Author shall discuss the GST treatment of Gift Cards and Vouchers
at the time of issuance and redemption.

14.2 MEANING OF VOUCHERS

While the term Gift card or pre-paid instrument is not defined under GST. However, the term voucher is
defined1 in GST Law as follows: -

“Voucher” means an instrument where there is an obligation to accept it as consideration ort part
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 instruments itself or in related documentation, including the terms
and conditions of use of such instrument.

[Emphasis Supplied]

From the above definition, it is clear that a voucher must have following 2 essential features –

1. It must be an instrument where it is an obligation to accept it as a consideration ort a part

consideration towards supply.
2. Either the Supply or the Supplier must be indicated in the instrument or in the related
documents.

It is clear that the definition of the “voucher” is sufficiently wide to include various kinds of instruments
including, Gift Cards, Discount Vouchers, Coupons, and certain types of pre-paid cards such as Sodexo
Meal Cards. Further, the aforesaid definition does not distinguish between an electronic card/voucher
and a physical card/voucher. Accordingly, irrespective of the mode of the issuance of voucher, both shall
be covered within the scope of the term voucher. The Vouchers are taxable under the GST Law as per
the notified tax rates.2

14.3 NATURE OF VOUCHERS DEFINED UNDER GST

Before proceeding further, it is also important to understand the nature of pre-paid instruments (PPIs),
which are governed under Payment and Settlement Systems Act, 2007 (‘PSS Act”). PPIs are instruments,
which enable payments to be effected between a payer and the beneficiary. As per RBI, there are mainly
3 types3 of PPIs –

 Closed System PPIs

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GIFT CARDS AND VOUCHERS INCLUDING PRE-PAID INSTRUMENTS
 Semi-closed System PPIs
 Open System PPIs

The difference between the aforesaid 3 categories is described with the help of the following table:

Closed System PPIs Semi-Closed System PPIs Open Systems PPIs

Issuing Permitted to be issued by Permitted to be issued by Permitted to be issued by
Authority non-bank entities. banks or non-banks banks only.
entities
Use Restriction These are issued by an These are issued by banks These are PPIs issued by
entity for facilitating the (approved by RBI) and banks (approved by RBI)
purchase of goods and non-banks (authorized by for use at any merchant
services from that entity RBI) for purchase of for purchase of goods and
only. goods and services. services, cash withdrawal
at ATMs/Points of Sale
(PoS) terminals, etc.
Cash Not Permitted. Not Permitted. Permitted.
Withdrawal
Requirement of No approval or Specific Approval Specific Approval
RBI Approval authorization required required. required.
from RBI.

In a judgement on Sodexo SVC India Pvt. Ltd. v. State of Maharashtra 4, the Hon’ble Supreme Court has
unequivocally held that such pre-paid instruments are not goods. Supreme Court in the said judgement,
overruled the judgement of the Bombay High Court which had classified the coupons as ‘goods’ for the
purpose of Local Body Tax (LBT) under Maharashtra Municipal Corporation Act (Act No. LIX of 1949).
Supreme Court held that the foods vouchers held to the employees are not ‘goods’ and hence they
would not be liable to the levy of LBT. Thus, the traditional understanding is that the vouchers are
treated as ‘goods.’

Further, as noted in the earlier Chapters, actionable claims are excluded from the purview of GST Laws.
GST Law does not define Actionable claim separately under the Act, the definition for an actionable
claim is taken as the one defined in section 3 of the Transfer of Property Act. Section 3 of the Transfer of
Property Act defines "actionable claim" 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
recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing,
conditional or contingent. 

[Emphasis Supplied] 

Thus, in order to qualify as an actionable claim, the vouchers/gift cards must be a claim to a debt which
is not secured either by way of — (i) mortgage of immovable property; (ii) hypothecation of movable
property; or (iii) beneficial interest in movable property. Prima facie, the vouchers/gift cards fulfil the
aforesaid 2 conditions as vouchers may qualify as a claim to a debt i.e., future supply of goods and the
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GIFT CARDS AND VOUCHERS INCLUDING PRE-PAID INSTRUMENTS
same is not secured by any movable or immovable property. However, these aspects are required to be
analysed in relation to each gift card/vouchers. 

14.4 TIME OF SUPPLY OF SINGLE USE VOUCHERS V. MULTIUSE VOUCHERS 

It is important to note that there are special provisions under GST 5 for determining the time of supply of
the vouchers. The time of supply vouchers is as follows — 

SECTION 12. Time of supply of goods. — (1) The liability to on goods shall arise at the time of

supply, as determined in accordance with the provisions of this section. 

(4) In case of supply of vouchers by a supplier, the time of supply shall be— 

a. the date of issue of voucher if the supply is identifiable at that point; or 

b. the date of redemption of voucher, in all other cases.

Identical provisions are provided in relation to time of supply of vouchers in relation to Services — 

SECTION 13. Time of supply of services. — (1) The liability to pay tax on services shall arise at
the

time of supply, as determined in accordance with the provisions of this section. 

(4) In case of supply of vouchers by a supplier, the time of supply shall be— 

a. the date of issue of voucher if the supply is identifiable at that point; or 

b. the date of redemption of voucher, in all other cases. 

[Emphasis Supplied]

Accordingly, from the above provisions, it is clear that where the supply against the voucher is
identifiable at the time of issue of voucher, the time of supply shall be at the time of issuance of the
voucher. This will be relevant where the gift card/voucher is redeemable against a single identifiable
supply. For e.g., the Gift card redeemable against a movie ticket. In such cases, the vouchers are taxed at
the time of issuance of the vouchers. On the other hand, where the Gift card is redeemable against
multiple supplies, then the vouchers shall be taxable at the time of redemption. For example, a Gift Card
of a particular store, which sells multiple variety of goods.

In other words, where the exact nature of goods or services to be supplied are available when the
voucher is issued, the time of supply will be the date of issue of voucher. On the of other hand, of
voucher, if the nature of supply of goods is not available at the time of issue of voucher, then the of time
supply of supply goods will not be considered as the date of redemption of voucher. 
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GIFT CARDS AND VOUCHERS INCLUDING PRE-PAID INSTRUMENTS

EU-VAT's Directive on Supply of Voucher

The concept of vouchers as well as the treatment under EU-VAT is similar to Indian GST. EU Directive
defines 'voucher' as an instrument where there is an obligation to accept it as consideration or part
consideration for supply of goods or services and where such goods or 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 [Article 30a of the
Council Directive (EU) 2016/1065.] The Voucher Directive further recognises two types of vouchers — 
 'Single-purpose voucher' ('SPV'), where the place of supply of goods or services to which the
voucher relates and the applicable VAT are known at the time of issue of voucher, and
 'Multi-purpose voucher' ('MPV'), which are defined as vouchers other than a single-purpose
voucher.
Each transfer of SPV by a merchant is regarded as a supply of goods or services to which the voucher
relates and the actual handing over of goods or provision of services becomes irrelevant [Article 30b
of the Council Directive (EU) 2016/1065]. The underlying principle is to treat the supply of SPV as the
supply of goods or services represented by such SPV itself, even though a registered person may be
merely supplying a piece of paper or its electronic equivalent. On the other hand, in case of MPV,
supply takes place with the actual handing over of goods or provision of services.
 

14.5 IMPORTANT RULINGS IN RELATION TO VOUCHERS 

At the outset, it is important to refer to the Advance Ruling pronounced in the case of Kalyan Jewellers
India Limited6. The Taxpayers in the said case, is a manufacturer and Trader in Gold and other Jewellery
items through their retail outlets and online portal. The said taxpayer as part of sales promotion,
introduced the facility of issuing different types of PPIs to their customers. The said PPIs were subject to
PSS Act and RBI's guidelines. The Taxpayer dealt with the following PPIs both in electronic/ digital and
paper formats- 

(1) Closed System PPIs – 

The taxpayer issued these to customers on receiving the face value as per the requirement of the
customer. The customer or holder can redeem these PPIs in any outlet of the Taxpayer's stores across
the country at the time of purchase of jewellery. 

(2) Semi Closed PPIs – [co-branded PPIs] 

The Applicant has an agreement with a third party (issuer), which issues PPIs at the retail outlet of the
applicant. The issuer pays the taxpayer upfront an amount, called the discounted value (lower than the
face value) and 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.  

In this background, the following queries were raised by the Taxpayers from the Authority — 

(1) Whether the issue of own closed PPIs to customers be treated as supply of goods or supply of
services? 

(2) If yes, is the time of issue of own closed PPIs, the time of supply of goods or services warranting
tax liability? 
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(3) What is rate of taxes applicable for such supply of goods or services as the case may be? 

(4) Whether the issue of PPIs by Third Party PPI Issuers subject to GST at the time of issue in their
hands? 

(5) Whether the amount received by the taxpayer from Third party PPI issuers subject to GST? 

(6) Whether GST collection at the time of sale of goods or services on redemption of PPIs i.e., own
and from third party will be a sufficient compliance of the provisions of the CGST Act? 

(7) What is the treatment of discount in the hands of issuer of PPI in case of third-party PPIs?
Whether the taxpayer will be liable to pay GST on this difference value? 

The Tamil Nadu Advance Ruling Authority at the outset concluded that the Vouchers issued by the
taxpayers are not goods. The Authority held that the gift voucher/gift card is an instrument squarely
covered under the definition of "payment instrument" under PSS Act. It is neither a claim to a debt nor
does it give a beneficial interest in any movable property to the bearer of the instrument. The Authority
held that, if the holder of the gift card/ voucher loses or misplaces it and is unable to produce it
before the applicants store before the time limit specified on the card/ voucher, the instrument itself
becomes invalid. Then the customer cannot use it to pay for any goods. Thus, as per the Authority, the
said Vouchers are not an actionable claim as defined under Transfer of Property Act, 1882. The
Authority held that the said Vouchers are only an instrument accepted as consideration/part
consideration while purchasing the goods from the issuer and the identity of the supplier is established
in the PPI. The Authority concluded that PPIs under consideration are 'Vouchers' which are given for use
in the retail outlets of KJIL for purchase of jewellery, i.e., goods and therefore the time of supply is
governed by the provisions under Section 12(4) of the CGST Act. 

The Authority answered the said questions as follows — 

1. The Own closed PPIs issued by the Taxpayers are 'vouchers' and are a supply of goods under
CGST Act. 

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. That paper-based gift vouchers classifiable under CTH 4911 and in the case of plastic-based gift
cards classifiable under CTH 8523. The Authority refused to provide in relation to the third-party
issuer, as the said issuer is a distinct entity from taxpayer and is based in Bengaluru. The
Authority noted that they do not have jurisdiction over the activity undertaken by this entity. 

The said Advance Ruling was challenged by the Taxpayer before the Appellate Authority for Advance
Ruling (AAAR)7. It is submitted by the Taxpayer that the PPI's are issued to the customers in card as well
as digital formats and it is not sold to the customers. Further, the PPI's are in the nature of actionable
claims and not goods. It is also submitted that if the PPI's are made liable to tax, it would amount to
double taxation as GST is levied on the supply of jewellery made by the taxpayer also at the time of
redemption of a voucher. 
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However, the Appellate Authority rejected the said contention. The Appellate Authority held that while
the vouchers are neither good nor services. However, there is no need to examine whether voucher is
an actionable claim. The Appellate Authority noted that a voucher is a means for advance payment of
consideration for future supply of goods or services. Voucher, being an instrument used as consideration
to settle an application, is a 

type of money. Even if such voucher is not recognised by Reserve Bank of India, it would still form a
means of payment of consideration, though it does not constitute money under the CGST Act. 

The Appellate Authority concluded that the law provides for taxing of the service at the point of time of
issue of voucher itself when the supply is clearly known at the time of issue. The supply of underlying
goods or ser. vices therefore gets taxed only at the time of issuance of voucher and not at the time of
actual availing of service or time of redeeming the Voucher. The Appellate Authority therefore modified
the ruling and held that the time of supply of the gift vouchers/ gift cards by the applicant to the
Customers shall be the date of issue of such vouchers and the applicable rate of tax is that applicable to
that of the underlying goods. 

Another important ruling is the case of Premier Sales Promotion Pvt. Limited 8, wherein the Karnataka
Advance Rulings. Authority decided on the issue of taxability of vouchers. In the said case, taxpayer was
acting as an intermediary for buying and supplying of e-vouchers. Particularly, three types of
transactions are being undertaken by the taxpayer, i.e., (i) Supply of gift vouchers (e.g. — Amazon gift
vouchers of various denominations); (ii) Supply of cash back vouchers; and (iii) Supply of e-vouchers with
multiple options. The taxpayer approached the AAR in respect of the following two questions: 

(z) Whether the vouchers themselves, or the act of supplying them is taxable, and at what stage? 

(it) If the same is taxable, what would be the rate of tax at which this would be taxable? 

The Authority after analysing the factual and legal matrix held that the supply of vouchers by the
taxpayer is not "actionable claim" as they are not debt or an instrument representing debt. Further, the
vouchers in question cannot be considered as "money" under the GST Law at the time of their supply by
the Applicant. The Authority held that the Vouchers printed on paper are undoubtedly goods, as they
are tangible. Further, e-vouchers being a movable property would be considered as intangible "goods" 

Accordingly, the Authority concluded that the said e-vouchers are taxable as per residual entry. 9
However, the time of supply in all three cases would be governed by Section 12(4) and Section 12(5) of
the CGST Act i.e. in case of voucher relating to identifiable supply, the supply is taxable at the time of
issuance; and in case the voucher relates to unidentifiable supply, then the voucher is taxed at the time
of redemption of voucher.

14.6 CONCLUDING REMARKS 

With the emerging technical developments, the alternative modes of payment towards procurement of
goods and services are becoming more popular with each passing days. However, the taxation of these
modes of payment is yet not attained clarity. The limited Advance Ruling Authorities available on the
subject do not provide enough clarity on the taxation of vouchers and gift cards. These rulings despite
acknowledging that the vouchers are neither goods or services have gone ahead to conclude the
taxability of the coupons and vouchers. Further, a clarity is required on the rate of tax applicable at the
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time of issuance of vouchers. While the Appellate Authority in the Kalyan Jewellers (supra) concludes
that the applicable rate of tax on the goods would be the tax applicable on the identifiable supply.
However, Karnataka Advance Ruling in the matter of Premier Sales (supra) provides that the vouchers
shall be chargeable as per the residual entry in GST Tariff. In view of the above, there is an urgent need
to clarify the taxability of the vouchers and gift cards.