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, ... Value of supply in case of pure agent (Rule 33) - Reimbursement of expenditure excluded from taxable value - Pure agent - no title or use of funds; payment on authorization - Separate indication of reimbursed payment in invoice - Service charge for facilitation taxable as supply on own accountValue of supply in case of pure agent (Rule 33) - Pure agent - no title or use of funds; payment on authorization - Separate indication of reimbursed payment in invoice - Whether the amounts received by the applicant from a foreign principal as crew salaries and disbursed to crew members are taxable under GST or are excluded from the value of supply as reimbursements by a pure agent. - HELD THAT: - The Authority examined the contractual arrangement and the proposed addendum under which the foreign principal (RMS) transfers the aggregate crew salaries to an account of the applicant and the applicant instructs the bank to disburse those salaries to crew members' bank accounts, while charging a separate fixed fee for the disbursement service. Applying Rule 33, the Authority found that the conditions for treatment as a pure agent are satisfied: the applicant makes payments on authorization of the recipient (RMS); the amounts to be disbursed are to be separately indicated and are disbursed in full without being used by the applicant; and the applicant supplies its own services (recruitment/administration) in addition to procuring payments on behalf of RMS. The applicant also receives a separate service fee for the disbursement activity. On these facts the sum received and passed on as crew salaries is not retained or used by the applicant and therefore qualifies to be excluded from the value of supply under Rule 33, leaving only the separate service charge liable to GST. [Paras 5]The amounts received by the applicant from the foreign principal as crew salaries and disbursed to crew members are not taxable under GST insofar as they are reimbursements made by the applicant in the capacity of a pure agent; the separate service charge remains a taxable supply.Final Conclusion: The Authority rules that, on the facts and contractual arrangements before it, the applicant acts as a pure agent in receiving and disbursing crew salaries on behalf of the foreign principal; those reimbursed salary amounts are excluded from the taxable value under Rule 33 and are not subject to GST, while the separately charged service fee is taxable. 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.