Whether the issue of Own Closed PPIs by the ‘Applicant’ to customers be treated as supply of goods or supply of services as defined under the provisions of the GST?

PJ/Case Law/2020-2021/3579

Kalyan Jewellers India Limited (GST AAR Tamilnadu) Order No. 52/ARA/2019dated 25.11.2019
Brief Facts-The Applicant is carrying on the business of Manufacturing and Trading of Jewellery Products in Tamil Nadu as well as across different states in India. KJIL is a Manufacturer and Trader in Gold and other Jewellery items through their retail outlets and also online portal. KJIL, as part of sales promotion, introduced the facility of issuing different types of Pre-Paid Instruments ((herein after referred as PPI’s) to their customers through their retail outlets as well as engaging third party online portal. These PPIs are generally called as “Gift Vouchers / Gift Cards” in the trade Practice. The PPIs are subject to Payment and Settlement Act 2007.
The taxpayer issued its PPIs (closed-ended PPIs), at face value, to its customers, which can be redeemed at any outlet of the taxpayer, across the country, for purchase of jewellery. Separately, the taxpayer has issued its PPIs to the third party at a discount, and the said third party, in turn, would issue the said PPIs at face value to the end customers (semi-closed PPIs).
Issues-

Whether the issue of Own Closed PPIs by the ‘Applicant’ to customers be treated as supply of goods or supply of services as defined under the provisions of the GST?
If yes, is the time of issue of Own Closed PPIs by the ‘Applicant’ to customers is the time of supply of goods or services warranting tax liability
If yes, what is rate of taxes applicable for such supply of goods or services as the case may be
If yes, whether the issue of PPIs by Third Party PPI Issuers subject to GST at the time of issue in their Hands
Whether the amount received by the ‘Applicant’ from Third party PPI issuers subject to GST
If No, GST collection at the time of sale of goods or services on redemption of PPIs i.e. own and from Third Party will be a sufficient compliance of the Provisions of the CGST Act.
What is the treatment of Discount (the difference between Face value and discounted value) in the hands of issuer of PPI in case of third party PPIs. Whether the ‘Applicant’ will be liable to pay GST on this difference Value

Applicant’s Contentions- The applicant contended that PPIs are not goods for the following reasons-

PPIs are governed by a Master Direction issued by Reserve Bank of India w.e.f. 11-10-2017 under Section -18 read with Section 10(2) of the Payment and Settlement System Act, 2007.
PPI’s are a kind of ‘Actionable Claim’ as defined under Section 3 of Transfer of Property Act, 1882.
Equivalent to money
As defined under Clause 6 of the Schedule III to the CGST/SGST Act, 2017 the PPIs are excluded from the levy of GST, as it is a kind of actionable claim.
As there is no element of manufacturing process involved in the scope for the levy of Central Excise Duty was absent, hence Central Excise not levied on this kind of Vouchers (PPIs).
The levy of Octroi or Local Body Tax by Maharashtra Municipal Corporation Act (Act No.LIX of 1949) on “Sodexo Meal Vouchers” treating as goods was not sustained by the Hon’ble Supreme Court of India, in the case of M/s. Sodexo Sve India Pvt LTd Vs. State of Maharashtra and Others, Wherein, the Hon’ble Court has treated `Sodex Meal vouchers’ as expenditure incurred by such employer and amenity in the hands of employee, nothing but salary, as defined under Section 17 of the Income Tax Act, 1961.

> PPIs are not services for the following reasons-

levy of Service Tax was started in 1994 on selected services, where there was no scope for the levy of Service Tax on PPIs issued.
In the case of Union of India Vs. Delhi Chit Fund Association (2014) 43 GST 524 (SC), it was held that in a mere transaction of money or actionable claim no service was involved and no service tax leviable.
In H.Anraj Vs. Govt. of Tamil Nadu in AIR 1986 SC 63, 71 the elements of actionable claims are framed as under:-

i) Any type of debt other than a debt secured by mortgage of immovable or hypothecation or pledge.
ii) Any beneficial interest in movable property not in possession.

In the case of Martin Lottery Agencies Ltd Vs. Union of India (2008) 14 STI’ 242 (Sikkim), relying on M/s. Sunrise Associates Vs. Union of India (2006) held that Lottery Ticket is an ‘Actionable Claim’.

> PPI contains two parts namely:-
(i) In first part, deposit of money for which PPI is being issued which is not service. In Banks no service tax is being levied for such deposit/receipt of money.
(ii) In second part, the money so received is being utilized/ adjusted for sale of Jewellery, for which GST is leviable at the time of supply of Jewellery, as the PPI’s is merged with a supply of goods and the scope for levy of service tax is completely absent.
> The time of supply of goods/services, where vouchers are involved, it is specified under Sub-section (4) of Section 12 85 Section 13 of the GST Act as under;
i) the date of issue of voucher, if the supply is identifiable at that point;or
ii) the date of redemption of vouchers, in all other cases.
> In this case, the supply is not identifiable, as the Jewellery is class of goods comprising of numerous items of gold or diamond jewellery and exact item of goods are not identifiable or ascertainable at the time of issue of voucher (PPI), hence time of supply could not be fixed for the levy at the time of issue of vouchers (PPIs).
> Moreover it is an actionable claim, will not come under the purview of GST as per the Clause 6 to the Schedule III to the GST Act.
Reasoning by Authority and Decision-On the various issues raised before the AAR, the authority observed as under:

PPIs are not an actionable claim - It is not a claim to debt, nor does it give a beneficial interest in any movable property to the bearer of the instrument. If the holder of the gift card/ voucher loses or misplaces it and is unable to produce it before the taxpayer stores before the time limit specified on the card/ voucher, the instrument itself becomes invalid. Then the customer cannot use it to pay for any goods. Thus it is not an actionable claim as defined under the Transfer of Property Act. It is only an instrument accepted as consideration/part consideration while purchasing the goods from the issuer, and the identity of the supplier is established in the PPI.
PPIs are vouchers/goods under the CGST Act - It qualifies as a voucher as defined under Section 2(118) of the CGST Act since it would be accepted as a consideration against the purchase of goods. The voucher has both a value and ownership and is the property of whoever first purchases or redeems it and is movable. It is neither money nor actionable claim, as discussed above. Hence, these gift vouchers/ cards issued by the taxpayer are ‘goods’ as per Section 2(52) of the CGST Act.
Time of supply - As mentioned by the taxpayer, PPIs are redeemable against any jewellery purchase. Accordingly, the time of supply of PPIs is the date of redemption of PPIs.

The authority has held that paper-based Pre-paid Payment Instruments (‘PPIs’) are classifiable under chapter heading 4911 (subject to GST at 12%) and plastic gift cards under chapter heading 8523 (subject to GST at 18%).
Prepared by- CA Preksha Jain

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PJ/Case Law/2020-2021/3579

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