Analysing Judgement of Hon’ble Bombay HC holding meal vouchers as ‘Goods’ & Implications
Recently the Hon’ble High Court of Bombay have pronounced an order which is a land mark judgment for Indian E-commerce Industry specifically and including Coupon / voucher sub-industry considering the vacuum of judicial pronouncements on this aspect. The matter relates to CWP No. 5653 of 2010 & 7503 of 2013 decided on 20th March, 2015 in case of M/s Sodexo SVC India Private Limited vs. The State of Maharasthra & others in Hon’ble Bombay HC where the basic issue required to be addressed by the court was,

Facts of the Case – The Arrangement

M/s Sodexo SVC India Private Limited (hereinafter referred to as ‘Petitioner’ / ‘Sodexo’) is engaged in conducting a business of providing pre­printed Sodexo Meal  Vouchers (“Vouchers”). Sodexo enters into a contract with its customers for issuing the said vouchers (Say Rs 100/- face value). The customers in turn distribute the said vouchers to their employees who are the actual users of the said vouchers. It is stated that Sodexo has contracts with various affiliates such as restaurants, departmental stores, shops, etc. Under the affiliate contracts, the affiliates are required to provide food and other items on presentation of the said vouchers by the users. The affiliates are bound to honour vouchers once presented by the users. The affiliates after receiving the said vouchers, present the same to Sodexo. On   receipt   of   the   vouchers,   Sodexo reimburses the affiliates after deducting service charges (say Rs 15/-).

To operate such a model of paper based voucher, Sodexo had obtained certificate of authorization from the Reserve Bank of India under Section 7 of the Payment and Settlement Systems Act, 2007 to operate a payment system for issue of meal and gift vouchers in the form of ‘paper based vouchers’ and ‘smart meal cards’ with effect from 25th June 2009.
The Issues

Whether the Sodexo Meal Vouchers are ‘goods’ for the purposes of levy of Octroi and LBT ?
Whether a Municipal Corporation constituted under the Maharashtra Municipal Corporations Act, 1949 is entitled to levy and/or collect Octroi or Local Body Tax (LBT) on Sodexo Meal Vouchers in accordance with the provisions of the Maharashtra Municipal Corporations Act,1949 and the Rules framed thereunder?
Petitioner’s Contention

The said vouchers are nothing but payment instructions or payment instruments issued under a payment system operated under the said Act of 2007 as per the authorization received from the Reserve Bank of India.
Under both the Octroi Rules and the LBT Rules, the taxes can be collected on the goods. Incidentally, since the octroi and LBT legislation does not throw light on definition of ‘Goods’ inference can be drawn on the other provisions of the Act i.e. Octroi or LBT can be levied on the consumption, use or sale of goods within the limits of Municipal Corporations. The said vouchers are a medium to acquire any article for consumption, use or sale and the said vouchers are not capable of consumption, use or sale by themselves. Simply to say that the said vouchers are only medium of payment.
Vouchers are similar to ‘Lottery tickets’ which held not be ‘goods’ by relying on Sunrise Associates v. NCT of Delhi (2006)5 SCC 603
Vouchers are similar to ‘papers and files in possession of a legal practioner’ by relying on D.Saxena v. Balram Prasad Sharma (2000)7 SCC 264
He placed reliance on State Bank of India v. Neela Ashok Naik and Another AIR 2000 Bom. (151) wherein fixed deposit receipts were held to be goods on their characteristic of being capable to be sold, purchased or consumed, but the said vouchers do not possess any such charactersictic.
He also relied on other judgements viz Bharat Sanchar Nigam Ltd. and Another v. Union of India and Others (2006)3 SCC 1 & TATA Consultancy Services v. State of Andhra Pradesh (2005)1 SCC 308 for laying down the characteristics of ‘goods’ and justifying as to said vouchers do not stand as ‘goods’ within the prescribed characteristics.
Revenue’s Contention

Revenue simply relied upon on the thesis that said vouchers were capable of use and/or consumption as well as sale within the limits of the Municipal Corporations.
In support of above, revenue relied upon a decision of the Division Bench in the case of Maharashtra Chamber of Commerce Industries & Agriculture & Others v. State of Maharashtra , through its Secretary & Others 2004(1) Bom.C.R. 137 and Small Scale Interpreneurs Association and Others v. State of Maharashtra and Others 2007(3) Bom.C.R. 496.
Key Judicial Lay-downs

The   said   vouchers   are   capable   of   being   sold   by   the Petitioner after they are brought into the limits of the City. In fact, going by the scheme narrated above, the said vouchers are sold by the petitioner to its customers for value.
Relying on Tata Consultancy services (supra), court pointed that (Para 81)
‘Goods’ may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored   and   possessed.

Going by the test laid down in Paragraph 81 of the said decision of the Apex Court in the case of TATA Consultancy Services, the said vouchers have its utility, the same are capable of being bought or sold and the same are capable of being delivered, stored and possessed. Hence said vouchers are in the nature of ‘goods’.

Citing the examples of several instances viz lottery tickets, Fixed deposit receipts and electromagnetic waves held that such printed paper vouchers are in the nature of ‘goods’ and are not in the nature of actionable claim. The said voucher cannot be equated with lottery ticket or electromagnetic waves.
How this Judgement opens up Pandora Box?

The judgment was limited only to determine the applicability of LBT and/or Octroi in respect of sale of Sodexo Meal Vouchers within the local municipality. Such judgment, though has left open the issue of whether such meal vouchers would qualify as ‘goods’ for other Acts as well.
Is it that the test laid out in TCS’s (Supra) and other cases referred to above conclusive to identify whether a particular item to be goods?
If such vouchers are held to be goods, will the redemption of such voucher tantamount to barter transaction?
Can this judgement have implications on coupons, gift cards and gift vouchers remains a point to ponder?
A lot many issues which arise because of this judgment remains unanswered and requires due consideration
Paper based voucher is similar to cases of cash cards used by several malls and retail outlets which create virtual currency on the card against which items can be purchased from retail outlets, does this sought of virtual currency also qualify to be ‘goods’?
Before Parting..

The decision of Hon’ble HC in the above case can lead to wide implications and the ones which might to un conductive to the trade and potentially lead to double taxation with ancillary implications. Industry though shall push the caution button to ensure that the mitigation strategy shall be duly implemented. Further, one may absurdly even see advance payment (as similar to said voucher) as ‘Goods’ by applying this ratio laid down!

About the Author: CA Ankit Gulgulia (Jain)

Author is practicing Chartered Accountant based in Pitampura, New Delhi. He is keenly interested in Indirect Taxation, Corporate Laws and Transfer Pricing besides being a writing enthusiast and a blogger.  He can be reached at ankitgulgulia@gmail.com. Available on facebook, twitter, linked In and Google Plus.