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, disbursed the entire salary amount received from the foreign principal to the crew members without using it for their own interest. The authority determined that the applicant's role as a pure agent exempts the salary amount from GST, with only the service charges for disbursing the salaries being subject to GST.

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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.

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