FEBRUARY 18, 2025

By CA Hunny Munjal

1. Introduction

THE taxability of vouchers under the Goods and Services Tax ('GST') regime has been the subject of extensive legal scrutiny and debate. The recent amendments to GST laws, particularly the omission of the provisions governing the time of supply for vouchers, have provided clarity in respect of taxability of vouchers. This article examines the evolving legal landscape regarding vouchers, the implications of the recent changes, and the potential challenges that lie ahead.

2. Judicial Pronouncements on Vouchers

Historically, the classification of vouchers under GST has been debated in courts. Two key judicial rulings have significantly influenced the interpretation of vouchers:

- Sodexo SVC India Pvt. Ltd. 2015-TIOL-293-SC-MISC-

15…After going through the relevant provisions and the principle laid down in various judgments explaining the features of 'services' and 'goods', we are of the opinion that the Sodexo Meal Vouchers cannot be treated as 'goods' for the purpose of levy of Octroi or LBT.

27… We, thus, allow these appeals and set aside the judgment of the High Court by holding that Sodexo Meal Vouchers are not 'goods' within the meaning of Section 2(25) of the Act and, therefore, not liable for either Octroi or LBT.

- Premier Sales Promotion Pvt. Ltd. 2023-TIOL-158-HC-KAR-GST -

21. It is not in dispute that the vouchers involved in the instant petition are semi-closed Pre-paid Payment Instruments [PPIs] in which the goods or services to be redeemed are not identified at the time of issuance. Vouchers are distributed to its employees or the customers which can be redeemed by them. These PPIs do not permit cash withdrawal, irrespective of whether they are issued by banks or non-banking Companies and they can be issued only with the prior approval of RBI.

22. In substance the transaction between the assessee and his clients is procurement of printed forms and their delivery. The printed forms are like currency. The value printed on the form can be transacted only at the time of redemption of the voucher and not at the time of delivery of vouchers to assessee's client. Therefore, the issuance of vouchers is similar to pre-deposit and not supply of goods or services. Hence, vouchers are neither goods nor services and, therefore, cannot be taxed.

These rulings laid the foundation for legislative changes aimed at bringing greater consistency to the treatment of vouchers under GST.

3. Legislative Amendments: Omission of Time of Supply Provisions

Previously, Sections 12(4) and 13(4) of the CGST Act prescribed specific time of supply rules for vouchers. These provisions created ambiguity, particularly concerning vouchers where the supply of goods or services was not identifiable at the time of issuance. The GST Council, in its 55th meeting, recommended the deletion of these provisions, which has now been implemented through legislative amendments.

Clause 117 of the Finance Bill, 2025 seeks to omit sub-section (4) of section 12 of the Central Goods and Services Tax Act so as to remove the provision for time of supply in respect of transaction in vouchers, the same being neither supply of goods nor supply of services.

Clause 118 of the Finance Bill, 2025 seeks to omit sub-section (4) of section 13 of the Central Goods and Services Tax Act so as to remove the provision for time of supply in respect of transaction in vouchers, the same being neither supply of goods nor supply of services.

The removal of these provisions effectively aligns the GST treatment of vouchers with judicial interpretations.

4. Clarification issued

To bring uniformity in the treatment of vouchers, the Central Board of Indirect Taxes and Customs ('CBIC') had issued Circular No. 243/37/2024-GST on 31st December 2024.

This circular provides much-needed clarification on various aspects of voucher taxation, including:

- Nature of Vouchers: The circular reiterates that vouchers are neither 'goods' nor 'services' but instead qualify as actionable claims. Therefore, their mere issuance does not attract GST.

- Principal-to-Principal Transactions: When vouchers are distributed between entities on a principal-to-principal ('P2P') basis, they remain outside the scope of GST as no supply of goods or services occurs.

- Commission-Based Distribution: In cases where vouchers are distributed by agents or intermediaries on a commission or fee basis, the commission or fee charged by the intermediary is liable to GST as a taxable service.

- Additional Services: If services such as advertisement, co-branding, marketing, technology support, or customization are provided in connection with vouchers, GST applies to the consideration received for these services.

- Unredeemed Vouchers (Breakage Revenue): If vouchers remain unredeemed after their expiry period, the revenue recorded as breakage is not subject to GST since no supply of goods or services occurs.

5. Conclusion

The removal of the time of supply provisions for vouchers, along with the clarifications provided in Circular No. 243/37/2024-GST, marks a progressive step towards reducing unwarranted litigation and aligning GST with judicial pronouncements.

[The views expressed are strictly personal.]