NEEM facilitator partner cannot claim pure agent status under Rule 33 for excluding reimbursements from GST taxable value

The AAR Karnataka ruled that the applicant, a NEEM facilitator partner, does not qualify as a pure agent under Rule 33 of CGST Rules 2017. The applicant sought to exclude reimbursements for trainee stipends and medical insurance from taxable value, claiming pure agent status. The AAR held that since the applicant raised invoices for these amounts without first incurring expenditure or providing contractual agreements, and failed to demonstrate procurement from third parties as required, pure agent conditions were not met. GST remains chargeable on the entire transaction value including reimbursements.

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Issues Involved:
1. Whether the Applicant is acting as a pure agent of the Industry partner to the extent of reimbursement received towards stipend paid to trainees and therefore the said reimbursement is not chargeable to GST.
2. Whether the Applicant is acting as a pure agent of the Industry partner to the extent of reimbursement received against the cost of medical and accident insurance obtained for the benefit of trainees and therefore the said reimbursement is not chargeable to GST.

Detailed Analysis:

Issue 1: Reimbursement of Stipend
The Applicant, a Section 25 company engaged in charitable activities, sought an advance ruling on whether the reimbursement received towards the stipend paid to trainees on behalf of the Industry partner is chargeable to GST. The Applicant argued that they act as a pure agent of the Industry partner as per Rule 33 of the CGST Rules 2017, and thus such reimbursements should be excluded from the taxable value.

Applicant's Interpretation:
The Applicant contended that:
- They act as a pure agent by making payments on behalf of the Industry partner.
- The stipend payments are separately indicated in the invoices.
- The stipend payments are additional to the services provided on their own account.

Authority's Findings:
The Authority examined Rule 33 of the CGST Rules 2017, which defines the conditions for a pure agent:
1. The supplier must act as a pure agent of the recipient of the supply when making payments to third parties on authorization by the recipient.
2. The payments made must be separately indicated in the invoice.
3. The supplies procured must be in addition to the services supplied on their own account.

The Authority found that:
- The Applicant did not furnish any contractual agreement showing they incur the expenditure first and then claim it later.
- The agreement with the Industry partner specified that the stipend amount is deposited by the Industry partner, not initially incurred by the Applicant.
- The Applicant receives the stipend amount from the Industry partner and then disburses it to the trainees, indicating they do not incur the expenditure initially.

Therefore, the Applicant does not fulfill the conditions to be considered a pure agent, and the reimbursement received towards the stipend is chargeable to GST.

Issue 2: Reimbursement of Medical and Accident Insurance
The Applicant also sought a ruling on whether the reimbursement received against the cost of medical and accident insurance obtained for the benefit of trainees is chargeable to GST. The Applicant claimed that they act as a pure agent in this regard as well.

Applicant's Interpretation:
The Applicant argued that:
- They incur the cost of insurance on behalf of the Industry partner.
- The insurance costs are separately indicated in the invoices.
- The insurance costs are additional to the services provided on their own account.

Authority's Findings:
The Authority found that:
- The Applicant did not provide any contractual agreement authorizing them to incur the insurance costs first and then claim them from the Industry partner.
- The agreement with the Industry partner indicated that the insurance costs are deposited by the Industry partner, not initially incurred by the Applicant.
- The Applicant receives the insurance amount from the Industry partner and then disburses it, indicating they do not incur the expenditure initially.

Therefore, the Applicant does not fulfill the conditions to be considered a pure agent, and the reimbursement received against the cost of medical and accident insurance is chargeable to GST.

Ruling:
1. The Applicant does not qualify to be a pure agent of the Industry partner to the extent of reimbursement received towards the stipend paid to trainees and therefore the said reimbursement is chargeable to GST.
2. The Applicant does not qualify to be a pure agent of the Industry partner to the extent of reimbursement received against the cost of medical and accident insurance obtained for the benefit of trainees and therefore the said reimbursement is chargeable to GST.

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