MARCH 11, 2016

By Dinesh K Vohra, & M G Kodandaram

THE Government of India is in the process of finalising the legal, technological and administrative base and infrastructure to bring in the GST regime which is said to be the mother of all reforms. It is expected to bring in much sought after vitality to all the economic activities of the Nation as it is going to be technology centered taxation regime, wherein the tax payer is facilitated and encouraged to voluntarily comply with the GST law. The GST law proposes to tax supply of goods or services or both, without examining the factor that in the present scenario there is existence of new common viz., cyber space which can create and throw open a variety of challenges to the traditionally understood taxation parameter 'tax either goods or services or both'. From the following developments it could be observed and concluded that 'mere two domains -goods and services' will not be sufficient to meet the needs of the coming days.

The future lies in the E-World/Virtual World and related techniques/instruments which would facilitate all the business transactions through full or partial virtual mode. Keeping in view the latest developments in the cyber world it is felt that-

(i) the time has come to think differently.

(ii) the time has come to go for out of box thinking for future needs.

(iii) the time is ripe for introduction of a third Category called "Neither Goods Nor Services".

We need to look into near future wherein new evolvement would be there in the field of business and these evolvements would emerge from Virtual/Electronic mode of business and its transactions. The case presented here is based on evidences which have emerged from experience that is due to dynamic changes that are occurring in the present day cyber society. The case cited below is to move towards understanding this new third category "Neither Goods Nor Services".

a) Till date the entire business world is divided into two major domains viz., of goods and of services.

b) Attempts have been made by tax authorities to put business transactions in either of them through various amendments to existing tax Laws.

c) There are provisions covering 'Works contract' which involves transactions pertaining to both the goods and services. They are being subjected to tax by legally terming certain portions of transaction as goods and/or some portion as services.

By the above approach we are limiting our thinking only to two spheres viz., either goods or services. The question arises as to how can we put the entire global transactions in two domains only as if there is no other world? We are not leaving any scope for future improvements in existing model of GST Law as we are attempting to divide the entire business into just two domains. We are forgetting the existence of the fifth common viz., cyber space, which can throw open newer products/utilities/transactions, that may,well go beyond the definitions assigned to goods and services. By limiting our horizon only to goods and services, we may end up in such a position wherein there is possibility of many business activities escaping taxation network.

For example, there is an industry now in nascent stage which appears to be the backbone of economic affairs of the world in future. This is the world in which "how" the goods and services will be bought by the people. Almost majority of transactions would be routed through them. The electronic world/Virtual world is slowly developing and evolving into new mode of payment instruments facilitating people for purchase of various goods and services. These so called "payments instruments" of future are:(In Hard/Electronic/Virtual Form)

a) Payment Instrument/Gateways (E form/Hard form)

b) E-Wallets (say Paytm E-wallets)

c) Prepaid Cash Cards (say IRCTC cards for railway bookings)

d) Prepaid recharge coupons (say for mobile phones)

e) Prepaid Cash Vouchers

f) Prepaid Gift Cards/vouchers.

g) Employers distributing utility coupons e.g., Sodexo Coupons.

h) Virtual currency e.g, Bit coins

i) Any other Electronic/Virtual form, which may emerge in future as Payment Instrument or related instrument.

In a recent judgment on Sodexo Coupons - 2015-TIOL-293-SC-MISC Hon'ble Supreme Court has overturned the judgment of Bombay High Court which had classified the coupons under the domain of goods inviting VAT and Local body tax (LBT). Apex Court has categorically decided that these so called food vouchers for employees (which can also be used at some designated stores for buying of goods etc.,) are not 'goods' and hence they won't invite VAT and LBT. Apex Court was also clear that these vouchers are merely "payment instruments" and not 'goods' and they become taxable only when they are redeemed.

It means:

1. This judgment shows that "Payment Instruments" are not 'goods'.

2. But this doesn't automatically mean that it is "services."

3. To become service, there has to be logical reasoning. Everything on earth can't become services just because they are not termed as goods.

4. A simple "transaction instrument" or "payment instrument" or "payment gateway" or a Voucher/E Voucher/recharge Coupon or E recharge Coupon or instrument can't be placed in services category logically as well as automatically.

5. If something is not 'goods', there is fair possibility that it may not be even a 'service'. There must be reasons and logic to classify things in these two domains of goods and services.

6. As per Supreme Court judgment, Sodexo redeemable coupons are not 'goods' but a payment instrument. These Coupons, not being goods, don't become services automatically.

7. Apex Court has also said that these coupons/payment instruments become taxable when they are redeemed to purchase goods or services only and not before that.

8. It also means that any transaction/purchase/sale/trading of these Payments instruments/vouchers/e-charges/e-cash cards etc. between different hands/firms/agencies shall not invite any indirect taxes.

9. Profits from their transaction become taxable only at the hands of Income Tax laws.

10. The emerging category viz., this third category of "Neither Goods Nor Services" escapes imposition of indirect taxes unless a specific definition is legislated.

11. Popularly we can term them as NGS, to mean, 'Neither Goods nor Services'.

We are further of the opinion that this third category of "Neither Goods nor Services" (NGS) which needs to be properly defined in the proposed GST laws should not be subjected to Indirect Taxes until it blooms and develops itself into a potent taxable event. We have a cardinal duty to allow it to establish and evolve itself before imposing any tax on such an event.

The positive side of usage of these instruments is that these are going to usher a newer order in transactions and business as far as transparency is concerned. The cloud of black economy, hoarding etc., will get diminished/reduced as the usage of this mode gets popular and recognised. Therefore, there is immediate requirement of all out efforts in this direction with an objective to reduce the impact of counterfeit money and to reduce tax avoidance that is rampant at present.

In this regard the recent guideline of Ministry of Finance,Department of Economic Affairs Currency & Coinage Division of GOI guidelines issued vide F.No-01/02/2015-Cy.I dated 29 Feb. 2016 on Promotion of Payments through Cards and Digital Means are worth noting. (refer Appeals to CIT (Appeals) only Electronically - Brevity is soul of Appeal). Under the guidelines, the digital transactions are defined as transactions in which the customer authorizes the transfer of money through electronic means, and the funds flow directly from one account to another. These accounts could be held in banks, or with entities/providers. These transfers could be done through means of cards (debit/credit), mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), pre-paid instruments or other similar means., The steps proposed to popularise the digital transactions include:

1. Promotion of Card/Digital Transactions in Government Payments and Collections;

2. Measures for Wider Adoption of Card/Digital Transactions;

3. Creating Acceptance Infrastructure;

4. Encouraging Mobile Banking/Payment Channels;

It is specifically mentioned that Department of Revenue shall take steps to remove double taxation, if any, on service tax currently paid on Merchant Discount Rate (MDR) by the acquiring bank and on interchange fee by the issuing bank.

The above facts indicate that -

1. There is immediate need of considering "Neither Goods nor Services" (NGS) as a taxable event so that the GST law will be clear in its application and approach.

2. Such a category may be allowed to grow as it brings in much required transparency into the business transactions.

3. Once the necessary technological challenges and easy feasibility to access by every citizen are met, it could be made as a mandatory way to transact any business.

4. Such transactions could be taxed in future, without giving room for double taxation. Any attempt to tax now will only hinder the progress of the facility.

'Neither Goods nor Services' - It is "an idea whose time has come".

(About the author(s) - Dinesh K. Vohra, Assistant Commissioner, Service Tax Audit, Mumbai & M.G.Kodandaram, Superintendent of Excise and Customs, Faculty, NACEN, Bengaluru.)