Issue of Prepaid Instruments or Gift cards treated as taxable supply of goods- “AAR Tamil Nadu”
by ReinHeads Team | Jan 15, 2020
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Issue of Prepaid instruments or Gift cards treated as taxable supply of goods – AAR, Tamil Nadu
- M/s Kalyan Jewellers India Limited (‘the Applicant’) is a manufacturer and trader of jewellery items. The Applicant sells the jewellery through its retail outlets as well as online portal
- The Applicant issues various types of prepaid instruments (‘PPI’s’) as part of its sales promotion activities. PPI’s are also termed as ‘Gift Cards/ Gift Vouchers’ in normal trade practice
· Types of PPI’s allowed to be redeemed by the Applicant against the sale of jewellery are as follows-
- Closed system PPI’s: Issued by the Applicant directly on receipt of face value as per the customer’s requirements
- Semi Closed system PPI’s: Issued by third parties at retail outlet of the Applicant. Holders of these PPI’s are allowed to redeem them at the outlet of the Applicant at the time of purchase of jewellery
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| Issues before the Authority for Advance Ruling (‘AAR’) |
| 1. Whether issue of closed system PPI’s to be treated as supply of goods/ services under GST?
2. If yes, what is the time of supply of goods and services?
3. If yes, what is the rate of GST applicable for such supply of goods and services?
| Contentions of the Applicant |
- PPI’s are an actionable claim as per section 3 of the Transfer of Property Act 1882 or equivalent to money. Therefore, PPI’s are not subject to GST (as per clause 6 of the schedule III to the CGST/ SGST Act, 2017)
- The sale or service affected at the time of redemption of such PPI’s are supply and taxable at the time of supply of the goods and services against PPI’s
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| Discussion & Ruling |
- Closed system PPI’s or Gift Cards/ Vouchers are payment instruments covered under the Payment and Settlement Act 2007. They are neither a claim to a debt nor they give a beneficial interest in any movable property to the bearer of the instrument. Thus, they are not an actionable claim
- The closed system PPI’s fall under the definition of goods under GST and holds nature of voucher as it satisfies the condition of being accepted as consideration against the purchase of specified goods from potential supplier as indicated in the same
- Therefore, PPI’s issued by the Applicant being ‘vouchers’ are covered within the definition of ‘goods’ under the CGST Act. As they are issued against consideration and are meant for the furtherance of business, the sale of vouchers constitutes ’supply’ under the CGST Act 2017
- In light of the above, it was ruled that-
- The closed system PPI’s issued by the Applicant are ‘vouchers’ and taxable as supply of goods under the GST provisions.
- The time of supply of PPI’s is the date of issuance of the voucher in case they are issued for procurement of any specific goods; otherwise the time of supply is the date of redemption of the voucher (i.e. where the voucher is issued as a gift card that can be redeemed against any goods/ services).
- PPI’s shall be taxable at the following rates-
- Paper based PPI: 12%, if covered under HSN 4911
- Smart Card based (having magnetic stripe or chipset): 18% if covered under HSN 8523
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- The AAR did not opined on the taxability of semi-closed system PPI’s as it involved third parties located in different jurisdiction.
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