Facts

Appellants were in the  business of  providing pre-printed paper meal vouchers to the customers with whom an agreement was entered into and who were establishments with number of employees. The customers paid the price equivalent to the face value of the vouchers and also service charges at specified percentage. The vouchers known as “sodexo  meal vouchers” were  given over  to the employees of such establishments who redeemed them with affiliated establishments such as restaurants, shops, departmental stores etc. for purchase    of food, gifts etc. with whom the appellants had made arrangements. The said affiliates presented the vouchers to the appellants and were reimbursed with the cost thereof after recovery of service charges.

The said vouchers were circulated under the authorization by RBI to operate a payment system based on “paper based vouchers” under section 7 of the “Payment and Settlement Systems Act, 2007”. Appellants were also required to adhere to    the Prepaid Issuance &operations of the Payment Instruments (Reserve Bank) Directives, 2009 and Consolidated Guidelines, 2014 thereunder. The payment instruments introduced by this Act merely facilitates the purchase of goods and services up to the value mentioned on such instruments. The amount paid by    the customers was strictly required to be kept in escrow account and used to reimburse the affiliates for sales effected by them against such vouchers. RBI as      a regulator had strict control over operation of the scheme.

The appellants resisted the levy of LBT on the vouchers since according to them, the system of vouchers was introduced only for providing service. The High Court negated the contention on the ground that vouchers were “sold” to the establishments and then distributed to their employees who in turn purchased

goods against such vouchers. In the opinion of the High Court, the vouchers were capable of being sold after entering the limits of Municipal Corporation. Therefore, they were “goods” within the meaning of sec. 2(25) of the Maharashtra Municipal Corporation Act (1949 Act) and hence, liable to LBT.

View

The Supreme Court considered the provisions and objectives of the “Payment and Settlement Systems Act, 2007” under which the vouchers were issued. The Court found that the system was introduced only to facilitate the provision of meals and other essentials to the employees of the organizations  and the activity was purely in the nature of service. The appellants were merely a facilitator or medium through which the service was provided to bridge the gap between customers and affiliates. The vouchers could not partake the nature of goods. High Court had  erred in treating the vouchers as goods.

The Court also examined the provisions of 1949 Act and observed that LBT is a   tax on the “goods” which enter the municipal limits for the purpose of sale, use     or consumption. If vouchers do not bear the character of “goods”, then no LBT   can be levied thereon. Under Income Tax  Act as well, the distribution of vouchers    is considered as “perquisites” and therefore, they cannot be considered as “goods”.

Held

“sodexo meal vouchers” are not “goods” and not liable to Local Body Tax.  (CA    No. 4385-4386 of 2015 dt. 9-12-2015)

Editorial: The ratio of this judgment lays down that vouchers when used merely   to facilitate the payment for goods or services, are not “goods” by  themselves and not liable to sales tax. However, CGST/SGST Act defines “voucher” under section 2(118) to mean “an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument”.

Thus, the voucher itself is  not ‘good’ but used to  facilitate supply of  goods    or services. The said Acts also defines the timeof supply in case of issue of

vouchers by the supplier both under sections 12 and 13. It is the date of issue        of the voucher when supply is identifiable at that point or date of redemption,       in any other case.

“I have not a shadow of a doubt that society    would be much cleaner and healthier if there was less resort to law courts than there is.”

– Mahatma Gandhi