Tvl.Kalyan Jewellers India Ltd vs Union Of India on 27 November, 2023

1. Outcome

The Madras High Court partly allowed the writ petition. It quashed the impugned order of the Tamil Nadu State Appellate Authority for Advance Ruling (TNSAAAR) to the extent that it uniformly held the time of supply for gift vouchers/cards to be at the point of issuance. The Court clarified that the taxability and time of supply depend on whether the underlying goods or services are identifiable at the time of voucher issuance.

2. Core Issue

The core issue was the determination of the time of supply for "Gift Vouchers/Gift Cards" (Pre-Paid Instruments or PPIs) issued by Kalyan Jewellers under the Central Goods and Services Tax Act, 2017, and the Tamil Nadu Goods and Services Act, 2017. Specifically, it questioned whether these vouchers are "actionable claims" falling outside the scope of "supply" under GST, and consequently, whether GST is leviable at the time of issuance of the voucher or at the time of its redemption.

3. Key Facts

• Tvl. Kalyan Jewellers India Ltd. (Petitioner) is a public limited company engaged in the manufacture and sale of ornaments.
• As a sales promotion, the Petitioner issues "Gift Vouchers/Gift Cards" (PPIs) through its retail outlets and third-party online portals.
• The Petitioner sought an Advance Ruling on whether the issuance of these PPIs is a supply of goods or services, the time of supply, and the applicable tax rate.
• The Tamil Nadu Advance Ruling Authority (AAR) initially ruled that own closed PPIs are 'vouchers' and a supply of goods, with the time of supply being the date of issue for specific goods and date of redemption for non-specific goods.
• The TNSAAAR (Second Respondent) modified the AAR's order, concluding that a voucher per se is neither goods nor service but a means for payment. However, it ruled that the time of supply of all gift vouchers/cards is the date of issue, with the applicable tax rate being that of the underlying goods, based on its interpretation of Section 12(4)(a) of the GST Acts.
• A rectification application by the Petitioner to the TNSAAAR only resulted in a change of nomenclature from "Gold Voucher" to "Gift Voucher" without altering the tax liability finding.
• The Petitioner's accounting treats amounts received for vouchers as "deferred revenue" or "Gift Voucher Liability," recognizing revenue only at redemption.
• Sample voucher terms indicated non-refundability, but the Court noted this conflicted with RBI Master Directions requiring refunds in certain scenarios.

4. Arguments

• Taxpayer (Kalyan Jewellers):
  • The Gift Vouchers/Cards are "actionable claims" under Section 3 of the Transfer of Property Act, 1882.
  • By virtue of Section 7(2) read with Schedule III of the GST Acts, actionable claims (other than specified ones) are treated neither as a supply of goods nor services, thus falling outside GST levy at the time of issuance.
  • These PPIs are governed by the Payment and Settlement Act, 2007, and RBI Master Directions, implying no tax at issuance.
  • Alternatively, tax should be levied only at the time of actual sale/redemption of the merchandise.
  • The AAAR's ruling that vouchers are neither goods nor services but still taxable at issuance is contradictory.
• Revenue (Union of India, GST Authorities):
  • PPIs/Vouchers are liable to tax under Section 12(4)(a) of the GST Acts.
  • Tax is payable at the time of issuance because the underlying commodity (e.g., gold jewellery, as identified in the AAAR's original "Gold Voucher" reference) is identifiable, triggering Section 12(4)(a).
  • PPIs/Vouchers do not qualify as "actionable claims" as per Section 3 of the Transfer of Property Act, 1882.
  • Therefore, the exclusion under Section 7(2) read with Schedule III is inapplicable.
  • The Petitioner merely needs to adjust its billing to pay tax at issuance; any differential tax would be paid at redemption.

5. Court’s Reasoning

• RBI Master Directions: The Court noted that "Gift Voucher/Card" is a "Prepaid Payment Instrument" (PPI) under RBI Master Direction dated 11.10.2017. Despite the Petitioner's voucher terms, RBI directions (Para 13.3, 13.7) mandate refundability of unused balances, establishing a legal obligation on the issuer.
• Vouchers as "Actionable Claims":
  • The Court analyzed the definitions of "voucher" (Section 2(118) GST), "actionable claim" (Section 2(1) GST incorporating Section 3 TPA), "goods" (Section 2(52) GST), "instrument" (Section 2(14) Indian Stamp Act), and "document" (Section 3(18) General Clauses Act).
  • Referring to Supreme Court precedents (UOI Vs. Raman Iron Foundary, Kesoram Industries), it defined "debt" as a sum payable now or in the future due to a present obligation.
  • Concluded that a "Gift Voucher/Card" is a "document" and an "instrument" that creates a right/liability and acknowledges a "debt." The obligation to accept it as consideration or refund the amount (enforceable in civil courts as per RBI directions) makes it an "actionable claim."
  • Since "actionable claims" (excluding lottery, betting, gambling) are listed in Schedule III and, by Section 7(2)(a), are neither a supply of goods nor services, the Court held that vouchers themselves are not liable to tax at the time of issuance. Only the underlying transactions are taxable.
• Interpretation of Time of Supply (Section 12(4) GST):
  • The Court clarified that Section 12(4) differentiates based on the identifiability of the supply.
  • Section 12(4)(a): If the "Gift Voucher/Card" is issued for specified and identifiable goods (e.g., a specific piece of jewellery of specified value), then tax is payable at the time of its issuance. This constitutes a "supply" (transfer of title) under Section 7(1A) read with Schedule II (Clause 1(a) and 1(c)), even if actual delivery or full payment is postponed.
  • Section 12(4)(b): If the "Gift Voucher/Card" is issued for a value to be redeemed against unspecified and unidentified goods or services from a range of products, the time of supply is postponed to the date of redemption when the actual purchase occurs.
  • The Court endorsed the reasoning of the Karnataka High Court in Premier Sales Promotion Pvt. Limited regarding vouchers for unidentifiable supplies.
• Legislative Ambiguity: The Court observed that the definitions of "voucher" and Section 12(4) were absent in the 2016 Model GST Laws, suggesting they were later additions, potentially contributing to interpretational confusion.

6. Statutory References

• Central Goods and Services Tax Act, 2017:
  • Section 2(1) (Actionable claim)
  • Section 2(52) (Goods)
  • Section 2(118) (Voucher)
  • Section 7 (Scope of Supply, 7(1A), 7(2)(a))
  • Section 12(4) (Time of supply of goods for vouchers, 12(4)(a), 12(4)(b))
  • Schedule II (Clause 1(a), 1(c) - Supply of Goods or Service)
  • Schedule III (Sl.No.6 - Activities neither Supply of Goods nor Services)
  • Section 98(6) (Advance Ruling)
  • Section 102 (Rectification)
• Tamil Nadu Goods and Services Tax Act, 2017: Parallel provisions.
• Transfer of Property Act, 1882: Section 3 (Actionable claim).
• Payment and Settlement Systems Act, 2007: Section 5.
• Indian Stamp Act, 1899: Section 2(14) (Instrument).
• General Clauses Act, 1897: Section 3(18) (Document).
• RBI Master Direction: RBI/DPSS/2017-18/58 Master Direction DPSS.CO.PD.No.1164/02.14.006/2017-18 dated 11.10.2017 (Paras 2.3, 2.4, 13, 13.3, 13.7).
• Constitution of India: Article 226.

7. Precedents Cited

• Sunrise Associates vs. Government of NCT, Delhi and Others, (2006) 5 SCC 603 (Cited regarding historical exclusion of actionable claims from "goods" definition).
• UOI Vs. Raman Iron Foundary, (1974) 2 SCC 231 (Relied upon for the definition of "debt").
• Webb v. Stenton, [(1883) 11 QBD 518] (Cited within Raman Iron Foundary for "debt" definition).
• People v. Arguello, [(1869) 37 Calif 524] (Cited within Raman Iron Foundary and Kesoram Industries for "debt" definition).
• Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax, AIR 1966 SC 1370 (Relied upon for the definition of "debt").
• M/s. Premier Sales Promotion Pvt. Limited, vs. The Union of India, Ministry of Finance, Department of Revenue, North Block, New Delhi 110 001, 2023(70) GSTL 345 (Karnataka High Court decision, relied upon for the principle that vouchers for unidentifiable goods/services are not taxable at issuance).