KA HC Reverses GST AAR & AAAR Order on Prepaid Payment Voucher

The AAR and AAAR decisions on the applicability of the Goods and Services Tax (GST) on the issuing of vouchers were recently overturned by the Karnataka High Court. The Court determined that there was no GST owed on the vouchers that the assessee had issued in the form of prepaid payment instruments.

The corporation in question purchases pre-paid payment instruments from issuers (such as gift certificates, cash-back vouchers, and e-vouchers) and distributes them to its customers with a certain face value. These coupons are used by the clients to reward staff members or to promote the purchase of products and services.

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The Karnataka High Court defined the transaction as the acquisition and distribution of printed forms, comparable to pre-deposit, despite the Karnataka AAR and AAAR rulings that the vouchers transferred by the corporation are goods. The vouchers cannot be taxed since they are neither commodities nor services.

Shivadass contended on behalf of the petitioner that the voucher cannot be considered to be either commodities or services but rather part-consideration for the delivery of products or services, or both. Vouchers would fall under the definition of “money” under the Central Goods and Services Tax Act of 2017, the attorney added, because they are regarded as instruments.

According to Jeevan J. Neeralgi, AGA for the Revenue, it cannot be said that the products are not recognizable because the assessee would be aware of exactly what is given to the consumer.

The Karnataka High Court Division Bench of Justice P S Dinesh Kumar and Justice T G Shivashankare Gowda noted that the issuance of vouchers is similar to pre-dep sit and not supply of goods or services when asked whether they are chargeable to tax at the time of supply or when goods and services are redeemed.

Given the aforementioned finding, it was determined that PPI vouchers are neither commodities nor services and cannot, thus, be taxed.