Gift vouchers comprise feature of money, not to attract GST

Gift vouchers will not attract GST, Central Board of Indirect Taxes & Custom (CBIC) clarified in a circular on Wednesday.

This clears the air after a number of contrary rulings by the Authority of Advance Rulings (AAR) and Appellate Authority for Advance Rulings (AAAR). Finally, in February 2023, the Karnataka High Court held that Gift Vouchers, Cash Back Vouchers, and E-Vouchers are not goods or services,.

The CBIC clarification came following a recommendation to this affect by the GST Council in its meeting on December 21.

“It is clarified that irrespective of whether voucher is covered as a pre-paid instrument recognized by RBI or not, the voucher is just an instrument which creates an obligation on the supplier to accept it as consideration or part consideration and the transactions in voucher themselves cannot be considered either as a supply of goods or as a supply of services,” the CBIC said in its circular.

This means there will be no GST per se on voucher. However, supply of underlying goods and/or services, for which vouchers are used as consideration or part consideration, may be taxable under GST, CBIC said.

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Taking note of the definitions of a voucher and the money and the description of ‘pre-paid instruments’ given by RBI, the circular said that where the voucher is covered as a pre-paid instrument recognized by the RBI and is used as a consideration to settle an obligation, then in such cases, the voucher will fall under the definition of ‘money’.

“In such a case, as “money” is excluded from the definition of goods and services as provided in the CGST Act, the transactions in voucher would be considered neither as a supply of goods nor as a supply of services,” the circular said.

Earlier, the matter was also deliberated upon by the Law Committee. It observed that irrespective of whether the voucher is covered as a pre-paid instrument recognized by RBI or not, the voucher is just an instrument that creates an obligation on the supplier to accept as consideration or part consideration. It said that the transactions in vouchers themselves can be considered neither as a supply of services nor goods.

On the issue of GST treatment of transactions in vouchers by distributors/ sub-distributors/ agents etc, the circular said that as such an act is neither a supply of goods nor supply of services, therefore, pure trading of vouchers in this case would not constitute either supply of goods or supply of services. “Such trading of vouchers would not be leviable to GST as per section 9 (1) of CGST Act,” it said.

However, GST would be payable by distributor/sub-distributor/agent, acting as an agent of the voucher issuer, on the commission/fee or any other amount by whatever name called.

Also, additional services such as advertisement, cobranding, marketing & promotion, customization services, technology support services, customer support services etc by distributor etc against a service fee will attract GST.

CBIC also clarified that amount attributable to non-redemption of voucher (breakage) would not constitute as a “monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person”. Therefore, no GST appears to be payable on such amount attributable to non-redemption of voucher (breakage).