India’s Central Board of Indirect Taxes and Customs (CBIC) Wednesday clarified that transactions involving vouchers do not constitute supply of goods or services and are thus not liable to goods and services tax.
However, GST will be applicable on additional services related to vouchers, such as marketing or commission-based distribution. Similarly, unredeemed vouchers, or ‘breakage,’ are not taxable as they do not constitute consideration for any supply, it said. The clarification comes following a decision in this regard by the GST Council.
“Overall it’s a significant development for the industry as it well help in bringing certainty of taxes and reduce undue litigation,” Saurabh Agarwal, partner, EY said. “It may however be interesting to see if the industry may explore claiming a refund of costs borne on GST already paid on such unredeemed vouchers,” he added. The CBIC has also issued clarifications on Input Tax Credit (ITC) on Ex-Works Contracts and e-commerce operators.
CBIC has clarified that businesses can claim ITC on goods purchased under “Ex-Works” contracts from the date of the invoice itself. This is because, under these contracts, goods are considered “delivered” to the buyer when handed over to the transporter at the seller’s factory gate.
Many businesses, especially those in sectors like automotive, heavy engineering, EPC contracts and others were facing difficulties due to confusion around when they could claim Input Tax Credit (ITC) on goods purchased on ex-works basis.
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