Facts of the Case

M/s. BI Worldwide India Pvt. Ltd., which provides employee and customer engagement and channel loyalty solutions to corporate clients, purchases vouchers and gift cards of various brands and makes them available to clients for further distribution, earning a margin — for instance, purchasing a Rs.100 face-value voucher at Rs.95 and selling it to the client at Rs.100. The Additional Director, Directorate General of GST Intelligence, issued a show cause notice dated 31.07.2024 (bearing DIN 202407DNN000008171EO) demanding CGST and KGST along with interest, penalty and personal penalty on the entire value of such voucher transactions, treating the petitioner's activity as taxable supply, prompting the challenge before the Karnataka High Court.

Issues Involved

  1. Whether the margin earned by a company in purchasing and reselling vouchers/gift cards on a principal-to-principal basis constitutes a supply of goods or services exigible to GST.
  2. How CBIC Circular No.243/37/2024-GST, distinguishing principal-to-principal voucher trading from distribution on a commission/agency basis, applies to the petitioner's business model.
  3. Whether the impugned show cause notice demanding GST on the entire transaction value, rather than only on any commission/agency income, deserves to be quashed.

    4. Petitioner's Arguments

    • The petitioner contended that under its agreements, it earns only a fixed margin (illustratively 5%) on vouchers purchased and resold to clients, who further distribute them to their own employees or customers — a pure trading activity, not a service rendered to the voucher issuer.
    • Relying on CBIC Circular No.243/37/2024-GST dated 31.12.2024, it was argued that such principal-to-principal trading of vouchers is neither a supply of goods nor of services under Section 9(1) of the CGST Act, and is therefore not leviable to GST; income tax was already being paid on the trading margin.

    Respondent's Arguments

    • The Department contended that by trading in vouchers/gift cards, the petitioner was also rendering services to its clients, making the transaction exigible to GST, and relied on the same Circular's clarification that commission or fee received by distributors/sub-distributors/agents acting for the voucher issuer is taxable as a supply of services.

    Court Order / Findings

    • The Court reproduced and analysed Circular No.243/37/2024-GST, which distinguishes two models: distribution on a principal-to-principal (P2P) basis, where the dealer purchases and owns the voucher and resells it for a trading margin — held not leviable to GST under Section 9(1) since it is neither supply of goods nor services — versus distribution on a commission/fee basis as an agent of the voucher issuer, where GST is payable on the commission/fee as a supply of services.
    • Finding that the petitioner purchases vouchers from the issuer and sells them to its clients at a mutually agreed margin, without rendering any marketing, promotion or distribution service to the voucher issuer itself, the Court held the petitioner's transaction squarely falls within the first (P2P trading) model of the Circular, and such trading margin is not exigible to GST under Section 9(1) of the CGST Act.
    • The writ petition was allowed and the impugned show cause notice dated 31.07.2024 was quashed by issuance of a certiorari.

    Important Clarification

    • CBIC Circular No.243/37/2024-GST draws a clear line between principal-to-principal voucher trading (margin not taxable, as it is neither goods nor services under Section 9(1)) and agency-based voucher distribution (commission/fee taxable as a service to the voucher issuer).
    • A business that purchases vouchers outright, owns them, and resells at a margin to its own clients — without any marketing/distribution obligation towards the original voucher issuer — falls in the non-taxable P2P category, regardless of any incidental services it separately renders to its own clients.
    • This distinction is now judicially endorsed, giving voucher/gift-card intermediaries a clear compliance framework to structure their GST position.

    Sections Involved

    • Section 9(1) of the Central Goods and Services Tax Act, 2017 – the charging provision, held inapplicable to pure principal-to-principal voucher trading margins.
    • CBIC Circular No.243/37/2024-GST dated 31.12.2024 – clarifies the GST treatment of voucher transactions by distributors, sub-distributors and agents, forming the basis of the ruling.

    Decision – In Favour of

    In favour of the assessee — the show cause notice demanding GST on the entire voucher transaction value was quashed as the petitioner's margin fell within the non-taxable principal-to-principal trading model.

    Case Details

    Court: High Court of Karnataka at Bengaluru
    Case No.: WP No. 26460 of 2024 (T-RES)
    Coram: Hon'ble Mr. Justice Suraj Govindaraj
    Date of Order: 23.07.2025

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