MAY 04, 2015

By Sushma Prasad & Raghavan Ramabadran

THE dispute as to what would constitute goods and what would not for the purposes of levy of sales tax is not new in the legal history. There have been various instances wherein the Courts have been called upon to decide as to whether particular items are goods or not such as Lottery tickets, software, electromagnetic waves, SIM cards, recharge coupons, REP and DEPB licences, electric energy, light energy and so on. Recently, the Bombay High Court in Sodexo SVC India Pvt. Ltd Vs State of Maharashtra 2015-TIOL-746-HC-MUM-MISC had an occasion to determine as to whether Sodexo meal vouchers are goods or not for the purposes of levy of octroi and local body tax.

Before dealing with the judgment and its reasoning let us first understand what a voucher is and how sodexo meal vouchers operate in the market. A voucher is a form authorizing a disbursement of cash or a credit against a purchase or expense to be made in future. In other words it is a written authorization, credential, a piece of evidence or proof that gives evidence of expenditure. It is merely a piece of paper or electronic card that can be exchanged for goods or services for the face value of the vouchers.

Sodexo meal vouchers are also paper-based vouchers which are used by the users for purchase of foodstuffs and beverages. The sodexo meal vouchers once printed by the Company are sold to its customers who are basically organizations who in turn distribute the said vouchers to their employees who are the actual users of the said vouchers. The voucher issuing Company has contracts with various affiliates such as restaurants, departmental stores, shops etc. Under the affiliate contracts, the affiliates are required to provide food and other items on presentation of the said vouchers by the users. The affiliates are bound to honour the vouchers once presented by the users. On presentation of the said vouchers, the users can acquire the food items and beverages for the face value of said vouchers.

The Bombay High Court in Sodexo SVC case (supra) dealt with the term 'goods' in order to determine whether the said vouchers can be said to be goods. It relied on the tests laid down by the Hon'ble Supreme Court in Tata Consultancy Services Vs. State of Andhra Pradesh 2004-TIOL-87-SC-CT-LB and held that the said voucher has its utility, is capable of being bought and sold, delivered, stored and possessed. It further held that these vouchers are nothing but printed paper and are sold to customers for a value which is printed in the said vouchers. The users use the vouchers for acquiring food and beverages from affiliate stores.

Implications of the above Judgment

- It appears from the above, that the Bombay High Court has held these vouchers to be goods solely relying on the tests laid down by Hon'ble Supreme Court in Tata Consultancy (supra). Does it therefore mean that the tests laid down in Tata Consultancy (supra) are the conclusive and exhaustive tests to determine a particular item to be goods?

- If the vouchers per se are held to be goods, then the same is leviable to VAT according to the respective laws of the States. However, the rate of tax which shall be leviable on such vouchers is not prescribed.

- It is evident that in exchange of many vouchers, either goods (foods and beverages) can be purchased or a service could be availed (restaurant service). Since the rate at which VAT would be leviable on these goods (vouchers) is not prescribed, should it be assumed that the rate at which goods are bought is the rate which is applicable on vouchers? Similarly, what would be the applicable rate if services are availed against vouchers?

- Moreover, if the said vouchers are held to be goods, and what we purchase from vouchers are also goods, then does it lead to a conclusion that the transaction is one of barter as goods are being exchanged for goods at the time of redemption?

- Does it also mean that the judgment in Sodexo SVC (supra) is applicable even for gift vouchers and are gift vouchers also 'goods'. The gift vouchers as well, satisfies all the essential features of a paper based voucher as discussed above. If that be so, then does it mean that even in case of gift vouchers there is a barter and a gift vouchers (if these are goods) can be exchanged for goods or services. In India, the issue of gift vouchers as to whether gift vouchers are goods or not have not been dealt with by any of the Courts. If the ratio of Sodexo SVC (supra) is applied to gift vouchers as well, it may lead to chaos in the industry regarding its valuation, rate of applicable VAT etc.

- Also, if a paper based voucher is held to be goods, what happens if certain amount as advance is paid by the customer to the seller. To illustrate, if the customer purchases goods worth Rs. 400 from a seller and gives 500 rupees note to the seller. Let us also assume that the seller does not have Rs. 100 to give back to the consumer and the consumer also does not have exact 400 rupees to give it to the seller. This happens with us quite normally on a day-to-day basis. In such a situation, if the seller on a piece of paper writes that the shop owes Rs. 100 to the customer and endorses it and gives it to the customer, that it can be used in future transactions, does it qualify to be goods? It is no doubt true that the endorsed piece of paper gives right to the customer to buy goods worth Rs. 100 in future and is a paper based voucher. It is also true that the tests laid down in Tata Consultancy case (supra), is fully satisfied in the instant case and hence, does it qualify to be goods?

- It is thus evident that there are lots of issues which arise as a consequence of the decision passed in the case of Sodexo SVC (supra) which are unanswered and seriously merits consideration.

- It is also pertinent to mention that under various jurisdictions for example, under New Zealand GST and under United Kingdom GST, the point of taxation for vouchers have been prescribed i.e., a deemed supply occurs upon the issue or sale of the voucher. Therefore, under United Kingdom and New Zealand GST tax is levied on the face value of the vouchers. However, in India the point at which tax is to be levied on vouchers is not settled i.e, is it the point of issue or sale of vouchers or at the time of redemption or at the time of entry of such vouchers within the local limits of a State.

Conclusion

Sodexo meal vouchers or a gift voucher or any paper based voucher is nothing but an advance payment made by the users of such vouchers to the sellers or service providers. Payment of an advance amount for a future transaction to purchase goods or to avail service cannot be held to be goods. However, in light of the present judgment holding the sodexo meal vouchers as goodsit appears that even receipt for advance payments are goods.

[The authors are associated with Lakshmi Kumaran & Sridharan and the views expressed are personal.]