Akash Deep & Sneha Madan – [2023] 151 taxmann.com 425 (Article)
1. Gifting something to somebody has always been a popular choice to express love and affection. However, it becomes equally difficult when it comes to choosing gifts. This age-old dilemma has been almost solved by gift coupons/vouchers/ cards. The person who wishes to gift something to somebody, but is not sure about the likes and dislikes of another person, can purchase such gift coupons and give them to the other person. The other person can simply go and get such gift coupons redeemed and purchase whatever he or she wishes for, being, limited by the value of the voucher itself. Generally, such gift coupons are in the form of either paper or plastic cards however, nowadays they also started issuing gift coupons in the form of coupon codes in digital form available to be purchased on the internet. The terms and conditions relating to the use of such coupons are printed thereon. The customer or the holder of such coupons can redeem the same against good and/or service at any of the shops, showrooms etc of the issuer or any third-party stores specifically identified /designated by the issuer within a definite time period. A typical gift coupon has the following characteristics:
- A validity period.
- Sold at face value.
- Redeemable only at the stores of the issuer or other group of third-party stores as identified by the issuer of gift coupon.
- Cannot be exchanged for cash.
- The unused amount is to be forfeited after the completion of the validity period.
2. No doubt receiving gift is pure bliss, especially when it is unexpected. However, suffering tax on the same can be quite unpleasant if one is not prepared for it, in advance. In this article, we shall be discussing the taxability of the most common form of gift coupons (i.e., paper strips or plastic cards) and other related issues.
3. The issue regarding the taxability of the sale/supply of vouchers has been a contentious issue. Under the erstwhile Service Tax regime, prior to the enactment of GST laws, this issue had come up before Hon’ble Supreme Court in the case of Sodexo SVC India (P.) Ltd. v. State of Maharashtra [2015] 64 taxmann.com 396/[2016] 53 GST 293/2016 (331) E.L.T. 23. In this case, the Appellant had entered into contracts with its customers, for issuing meal coupons/vouchers. Such meal vouchers, in turn, were distributed amongst employees by the customers (usually, large corporations having a large number of employees on their payroll adopt this arrangement). The employees were able to use such vouchers to purchase the goods when presented at the designated stores identified by Sodexo. The affiliates were able to encash such vouchers when presented to Sodexo. Sodexo was charging commissions from the customers as well as affiliates for such a facility. The issue before Hon’ble SC was whether the voucher (i.e., paper strip printed with the name of the issuer and face value of such voucher) can be treated as ‘goods’ for levy of Octroi or Local Body Tax or the aforesaid activity only amounts to the rendering of service by Sodexo. The issue was examined as per the relevant provisions of the Maharashtra Municipal Corporation Act under which the Municipal Corporation is entitled to levy octroi or local body tax ‘on the entry of goods into the limits of the city’, wherein the said goods are meant for consumption, use or sale therein. In para 15 of the Judgment, Hon’ble SC held that ‘Sodexo Meal vouchers’ cannot be treated as “goods” for levy of octroi or LBT. After observing the nature of the transaction, Hon’ble Court observed that the intrinsic and essential character of the entire transaction is to provide services by the Appellant, and this is achieved through the means of the said voucher. Hon’ble Supreme Court negated the findings of the Hon’ble High Court that such vouchers were capable of being sold by Sodexo after they were brought into the limits of the city. Hon’ble Supreme Court held that these vouchers were printed for a particular customer, which were used by the customer for distribution to its employee and these vouchers were not transferable at all. Under Para 24, Hon’ble Supreme Court devised the test as to whether such vouchers can be traded and sold separately. As such vouchers were not capable of being traded and sold separately same were not held as goods.
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