2018 (12) TMI 893 - AAR - GST

GST exemption for salary reimbursement as pure agent - service charges subject to GST

The authority ruled that GST is not applicable on the reimbursement of salary on behalf of a foreign entity. The applicant, acting as a pure agent, ... Levy of GST - Reimbursement of salary on behalf of foreign entity - pure agent or not - Held that:- The applicant is a Crew Recruitment and Placement Agency, and are involved in selecting and recruiting shipping personnel on behalf of their principal/ client who is a Foreign Ship Owner and for which they are charging Administration fees and paying GST on such Administration charges so received. The Salary of Crews of RMS will be deposited in the account of the applicant in one go and the same will be transferred from the applicant’s account directly to the bank accounts of the Crews, by the bank, on the directions of the applicant - the entire amount received by the applicant from RMS towards salary of crews is disbursed as such. Hence with respect to this transaction it is crystal clear that the applicant is acting as a pure agent of RMS. The applicant will be acting as a pure agent of RMS in as much as the entire amount received by them as Crews’ Salary will be disbursed to the Crew and no amounts from the said receipt will be used by the applicant for his own interest. In fact, for performing as a pure agent they will also be receiving compensation separately in the form of fixed fees to be charged as service charges. The applicant will not be liable to pay GST on Salary amount received from RMS and disbursed to the Crew. Ruling:- GST is not applicable on Reimbursement of salary on behalf of foreign entity. Issues Involved:1. Whether GST is applicable on reimbursement of salary on behalf of a foreign entity.Issue-wise Detailed Analysis:1. GST Applicability on Reimbursement of Salary on Behalf of Foreign Entity:Facts and Contentions:The applicant, a Crew Recruitment & Placement Agency, selects and recruits shipping personnel on behalf of a foreign ship owner, charging administration fees and paying GST on these charges. The applicant's principal has requested the disbursal of crew salaries through the applicant, with the principal transferring the total salary amount to the applicant, who then disburses it to the crew members' accounts. The applicant charges service fees for this activity and discharges GST liability on these charges. The applicant contends that the salary amount remitted for disbursal should not be taxable under GST per Rule 33 of the CGST Rules, 2017, as they act as a pure agent.Applicant’s Interpretation of Law:The applicant refers to the RBI Circular No. 15 dated 24.09.2015 and Regulation 6 of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000, which allow ship-manning/crew management agencies to open foreign currency accounts for meeting local expenses in India. The applicant argues that as a pure agent, the salary disbursed should not be taxable under GST.Concerned Officer's Contention:The concerned officer agrees that under Rule 33 of the CGST Rules, 2017, the salary should not be taxable under GST as the applicant acts as an agent on behalf of the foreign principal. The applicant does not provide manpower but recruits it, and the personnel are employees of the foreign principal.Hearing and Observations:During the hearings, the applicant and the jurisdictional officer made submissions. The applicant provided contracts and addendums with RMS Ltd., Bermuda, indicating that the applicant assists in hiring officers and disburses salaries on behalf of RMS. The applicant charges a fixed fee for this service, inclusive of GST.The authority observed that the entire salary amount received from RMS is disbursed to the crew members, and the applicant acts as a pure agent. Rule 33 of the CGST Rules, 2017, states that costs incurred by a supplier as a pure agent are excluded from the value of supply if certain conditions are met. The applicant meets these conditions, as they act on behalf of RMS, do not hold title to the salary amounts, and disburse the entire amount without using it for their own interest.Judgment:The authority concluded that the applicant acts as a pure agent of RMS and the salary amount received and disbursed to the crew is not taxable under GST. The applicant will only be liable to pay GST on the service charges received for disbursing the salaries.Order:The question of whether GST is applicable on reimbursement of salary on behalf of a foreign entity is answered in the negative, based on the detailed facts and provisions discussed.Citation:2018 (12) TMI 893 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA.