JUNE 19, 2017

By M K Gupta

TELECOM services are unique since they are provided seamlessly across geographies involving role of multiple agencies with high speed, volume and intensity of transactions. Accordingly, under the service tax legislation, separate and distinct rules are prescribed for the place of supply and valuation of telecom services.For pre-paid services, value of telecommunication service provided by a telecom service provider is deemed to be the gross amount payable by the ultimate subscriber who avails the telecommunication service and not the amount charged by a telecom service providers from the intermediaries (i.e. the distributors, retailers of vouchers).Therefore, on prepaid services, service tax is paid on the MRP of the voucher by the telecom service providers on its first sale to the distributors. Subsequent sale in the hands of distributors and retailers is exempt by virtue of Mega Exemption Notification 25/2012-ST dated 20th June 2012. This not only ensures that the Government gets the tax on the complete value of services but also saves lakhs of downstream small distributors/retailers from the burden of registration and tax compliances.

While the said exemption has not being retained in the GST exemptions issued so far, it appears from the various provisions of GST statute and rules that the position has not changed and that such vouchers will continue to be levied to GST on at the first point of sale on the full MRP value of the telecom voucher. The relevant provisions are discussed herein.

GST Valuation Rules (rule 6(6)), prescribes the following method for determination of value of supply of goods / services redeemable against a voucher-

'The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.'

Further, the provision of time of supply as contained in Section 13 in respect of supply of vouchers by a supplier is as follows:

'(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.'

Upon a combined reading of the aforesaid provisions it may be concluded that -

A. In the case of telecom vouchers a supply is identifiable at the time of issuance of voucher which is the telecom service, sub clause (a) of clause 4 of Section 13 will apply and for supply of vouchers by supplier the time of supply shall be the date of issuance of the voucher which is essentially the date of supply after first point of sale / distribution. Subsequent supplies down the distribution chain cannot be considered as transactions of issuance of voucher.

B. The value of vouchers shall be the money value redeemable against such vouchers in accordance with Rule 6(6) of the GST Rules, thus the telecom service provider shall have to pay tax on the MRP of the voucher.

The only issue and source of ambiguity that remains is that the time of supply has been defined as the time of issuance of voucher and the taxable value is the face value of the voucher. However, the distribution chain have not been exempted. Therefore, each time a distributor supplies the voucher to a sub distributor or to are tailer and the retailer to a consumer, there will be a fresh supply and on each of these transactions GST would need to be discharged again on face value of the voucher. The time of supply for each such transaction, as per provision of Section 13(4)(a), would be the time at which the voucher has been issued by the telecom company since the supply by distributor or sub distributor or the retailer cannot be treated as issuance of voucher. This would foresee ably lead to the following problems.

a) At each stage of distribution, tax would need to be paid on face value of the voucher which would lead to accumulation of credit in the hands of distributor on account of other input / input services used by them.

b) Impossibility of compliance as for every supply made subsequently the time of supply would need to be pegged to the issuance of voucher which would be much before the date of subsequent supply leading to impossibility in compliances and consequent interest liabilities.

c) Increase the burden of compliances on small number of retailers and distributors involved in supply chain of vouchers.

It would, therefore, be in fitness of things and interest of around 15-20 lakh small scale retailers that the policy makers clarify the matter that GST would not be payable at any other subsequent stages of supply since the entire tax has been collected at the time of issuance of voucher. While ensuring that there is no revenue leakage, this step will also ease the burden of compliance on large number of small scale and micro entrepreneurs engaged in distribution of these vouchers.

(The author is IRS(Retd), Former Vice Chairman Settlement Commission; DG Audit, CBEC. The views expressed are strictly personal.)