Introduction on various types of “payment instruments”:
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:
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.
Supreme Court Judgement relating to “ Payment Instrument”
In a 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.
Understanding the above judgement
The above judgement signifies:
1. This judgment shows that “Payment Instruments” are not ‘goods’.
2. But this doesn’t automatically mean that it is “services.”
3. 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.
4. 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.
Vouchers – under GST Regime
Vouchers are not defined in the Act but its general definition is “a small printed piece of paper that entitles the holder to a discount or that may be exchanged for goods or services”.
Examples of vouchers are coupon, token, ticket, license, permit, pass.
‘Voucher’, for the purposes of GST, necessarily means that instrument which should be accepted as consideration (wholly or partly) for a supply. Therefore, a voucher is an asset for the recipient, and without a recipient, a ‘voucher’ would lose its meaning.
Therefore, in a case of a supplier issuing a voucher to a recipient of goods, on his making a purchase from the supplier, the voucher is not being viewed as an additional outcome of the supply made to the recipient. Rather, it is an instrument that can be used in place of money (or other consideration) which can be used on effecting yet another inward supply.
Time of supply in case of vouchers:
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.
Government in its wisdom, in all probability, will treat ‘vouchers relating to goods’ and ‘vouchers relating to services’ as distinct and separate class of transactions.A layman would comprehend that vouchers relatable to goods would be those class of transactions which can be exchanged for goods whereas vouchers relating to services being distinct and separate can be exchanged only for services.
There can be a third class of transactions relating to vouchers, namely, a gift voucher issued by a bank which can be exchanged only for cash. But a plain reading of definition of goods and services indicates that they both exclude money. Therefore, such of those vouchers relatable to cash / money can be safely assumed to be outside the ambit of GST laws.
Rate of GST on vouchers
The rate of tax will be that applicable to goods or services they are issued in respect of or that applicable at the time of redemption.
Value of supply
In case of supply of a voucher, the value will be the redemption value of the voucher.
For eg - Mr. & Ms. Sharma purchase 10 gift vouchers for Rs. 500 each from Crossword, and 5 vouchers from Four Fountains Spa costing Rs. 1,000 each, and gives them as return gifts to children and their parents for their son’s birthday party. The vouchers from Four Fountains Spa had a special offer for couples – services for both persons at the price chargeable to one.
The value of the supply would be the money value of the goods redeemable against the voucher.
Thus, in case of vouchers from Crossword, the value would be Rs. 5,000 (i.e.,Rs.500 * 10) and the value of vouchers in case of Four Fountains Spa would be Rs.10,000 (i.e., Rs. 1,000 * 2 * 5).
Disclaimer - The information provided in this document is for general information only. It is based on the information available publicly and the advice received from various professional experts regarding the GST law. The user of this document should be aware that the interpretation or implications of relevant GST rules may change/vary depending upon circumstances applicable to the user.