The Madras High Court has clarified the GST implications of gift vouchers issued by Kalyan Jewellers. The court held that gift vouchers are actionable claims and not taxable unless they are for specified goods and value.
Gift vouchers are popular instruments for gifting and purchasing goods and services. However, their taxability under the Goods and Services Tax (GST) regime has been a matter of dispute. Recently, the Madras High Court (HC) has provided some clarity on this issue in the case of Tvl. Kalyan Jewellers India Ltd. Vs Union of India [W.P. No. 5130 of 2022].
Background of the case
Kalyan Jewellers, a manufacturer and seller of ornaments, had introduced a scheme of issuing different types of gift vouchers. These gift vouchers were sold in its retail outlets as well as through online portals. The gift vouchers could be redeemed against any goods or services sold by Kalyan Jewellers within a specified period.
The company had sought an advance ruling from the Authority for Advance Ruling (AAR) on whether these gift vouchers were taxable under GST and if so, at what point of time. The AAR held that the gift vouchers were taxable at the time of their issuance, irrespective of whether they were for specified or unspecified goods or services.
The company appealed against this ruling before the Appellate Authority for Advance Ruling (AAAR), which modified the AAR’s order and held that the gift vouchers were neither supply of goods nor supply of services under GST. However, the AAAR also held that the time of supply of gift vouchers was exclusively the date of their issuance, as per Section 12(4) of the CGST Act, 2017.
Aggrieved by this order, the company filed a writ petition before the HC.
Ruling of the HC
The HC examined the nature and characteristics of gift vouchers and observed that they were pre-paid instruments (PPIs) issued by Kalyan Jewellers for facilitating the purchase of goods and services from its own brand only. Therefore, they fell under the category of closed system PPIs as defined by the Reserve Bank of India.
The HC further noted that gift vouchers were debt instruments that represented an enforceable debt or obligation owed by Kalyan Jewellers to the holder of the voucher. Therefore, they qualified as actionable claims under Section 2(1) of the CGST Act, 2017.
The HC then referred to Schedule III of the CGST Act, 2017, which lists certain activities or transactions that are neither supply of goods nor supply of services. Entry 6 of this schedule covers actionable claims, other than lottery, betting and gambling.
The HC concluded that gift vouchers issued by Kalyan Jewellers were actionable claims and hence, not taxable under GST unless they were issued for specified or identified goods and for a specified value. In such cases, GST would be payable at the time of issuance of the voucher. However, in cases where the goods or services remained unidentified for future purchase, GST would be applicable only at the time of redemption of the voucher.
The HC also rejected the AAAR’s interpretation of Section 12(4) of the CGST Act, 2017, which provides for the time of supply in case of vouchers. The HC held that this provision was applicable only when there was a supply of voucher as a good or service under GST. Since gift vouchers were neither goods nor services, this provision was not relevant.
Implications of the ruling
The ruling of the HC has provided much-needed clarity on the taxability of gift vouchers under GST. It has also harmonized the treatment of gift vouchers with that of other actionable claims under GST. The ruling will benefit both issuers and holders of gift vouchers as it will reduce their tax burden and compliance cost.
However, it is important to note that this ruling is specific to the facts and circumstances of Kalyan Jewellers’ case and may not apply to all types of gift vouchers issued by different entities. Therefore, it is advisable to seek professional advice before issuing or redeeming any gift voucher under GST.