Reimbursement of stipend expenses to students does not attract GST under Rule 33 pure agent provisions

The AAR Maharashtra ruled that reimbursement of stipend expenses paid to students/trainees does not attract GST when acting as pure agent. The applicant facilitated on-the-job training by coordinating between universities and industry partners, receiving exact stipend amounts from industry partners and disbursing them fully to trainees without deductions. The AAR determined the applicant satisfied all conditions under Rule 33 as pure agent, serving merely as conduit for stipend payments while trainees provided actual services to industry partners.

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The core legal issue considered by the Authority for Advance Ruling (AAR) Maharashtra was whether the reimbursement received by the applicant from industry partners for stipends paid to students/trainees, acting as a pure agent under GST laws, attracts Goods and Services Tax (GST). The applicant had initially sought rulings on three questions relating to reimbursement of stipends, insurance premiums, and uniform/safety shoes expenses, but withdrew the latter two questions. Consequently, the ruling focused solely on the GST liability on reimbursement of stipends paid to trainees.

The primary legal question was:

• Whether the reimbursement by the industry partners to the applicant, of expenses incurred in respect of stipend paid to students/trainees as a pure agent under GST laws, attracts GSTRs.

Other related issues implicitly considered included:

• Whether the applicant qualifies as a 'pure agent' under Rule 33 of the CGST Rules, 2017 for the stipend payments.
• Whether the stipend paid to trainees constitutes a taxable supply or is exempt under GST laws.
• Interpretation and application of relevant provisions of the CGST Act, 2017, including Section 7 (definition of supply), Rule 33 (pure agent), and Schedule III (non-taxable supplies).
• Effect of contractual arrangements between the applicant, industry partners, and trainees on the GST liability.
• Reliance on precedents and prior rulings on similar issues.

Issue-wise Detailed Analysis

1. Applicability of GST on reimbursement of stipend paid to trainees by the applicant acting as a pure agent

Legal Framework and Precedents:

The GST regime defines 'supply' under Section 7(1) of the CGST Act, 2017 as all forms of supply of goods or services for consideration in the course or furtherance of business. The concept of 'pure agent' is codified in Rule 33 of the CGST Rules, 2017, which excludes from the value of supply the expenditure or costs incurred by a supplier acting as a pure agent of the recipient of supply, subject to conditions:

• The supplier acts as a pure agent when making payment to a third party on authorization by the recipient.
• The payment made on behalf of the recipient is separately indicated in the invoice.
• The supplies procured by the pure agent from the third party are in addition to the services supplied on own account.

Further, the 'pure agent' must have a contractual agreement to act as such, not hold title to goods or services procured, not use them for own interest, and receive only actual amounts incurred.

Schedule III of the CGST Act excludes services by an employee to the employer in the course of employment from supply, and CBIC FAQs clarify that stipends paid to interns are employer-employee transactions not liable to GST.

Precedents cited included Advance Ruling Authority decisions from Maharashtra and Karnataka, notably the Karnataka AAR ruling in the Team Lease Education Foundation case, which held that reimbursement of stipend paid to trainees did not qualify for pure agent exemption and was taxable.

Court's Interpretation and Reasoning:

The AAR examined the nature of the applicant's agreements with industry partners and trainees, the invoicing mechanism, and the flow of funds. The applicant coordinated skill development training under a "learn & earn" scheme, entering into agreements with universities and industry partners to provide on-the-job training to students aged 18-30 years.

The applicant raised separate invoices to industry partners for stipends payable to trainees, administrative charges, course fees, insurance, uniforms, and other expenses. The stipend amount was reimbursed by industry partners to the applicant, who then disbursed it fully to trainees without deduction.

The AAR scrutinized whether the applicant met the conditions of a pure agent under Rule 33. Key considerations included:

• The existence of a contractual agreement authorizing the applicant to incur expenditure on behalf of the industry partners.
• Whether the applicant holds title or uses the stipend funds for own interest (it did not).
• Whether the stipend amount was separately indicated in invoices (it was).
• Whether the applicant procured supplies from third parties as a pure agent in addition to services supplied on own account (the applicant provided additional services such as training, insurance, and administrative support).
• The flow of funds showed that industry partners paid the stipend amount to the applicant, who disbursed the same fully to trainees, acting as a conduit.

The AAR distinguished the facts from the Karnataka Team Lease case, noting that in the instant case the stipend payment obligation was on the industry partners, with the applicant acting under agreements to facilitate payment and training, rather than being responsible for stipend payment itself.

Key Evidence and Findings:

• Agreements between applicant and industry partners explicitly required industry partners to pay stipend and reimburse the applicant.
• Invoices separately indicated stipend reimbursement.
• The applicant did not retain or use stipend funds for own benefit.
• The applicant provided additional services for which GST was charged.
• Trainees were enrolled with universities and provided services to industry partners, effectively acting as employees for stipend purposes.
• Applicant's role was limited to coordination, administration, and disbursement.

Application of Law to Facts:

The AAR applied Rule 33's conditions strictly and found that the applicant satisfied all conditions to be regarded as a pure agent for stipend payments. The stipend reimbursement was excluded from the value of supply for GST purposes, and hence not liable to tax. The applicant's additional services were subject to GST separately.

Treatment of Competing Arguments:

The jurisdictional officer argued that the applicant did not qualify as a pure agent because:

• No contractual authorization was furnished to incur expenditure first and claim later.
• The applicant did not procure supplies from third parties as pure agent in addition to own services.
• The applicant raised invoices including stipend reimbursement, which should be taxable.
• Precedent from Karnataka AAR in Team Lease Education Foundation supported taxing stipend reimbursements.

The applicant countered that:

• The law does not mandate that expenditure must be incurred first; reimbursement on accrual basis with separate invoice indication suffices.
• Contractual agreements with industry partners clearly stipulated reimbursement obligations.
• Stipend paid to trainees is akin to employee remuneration, excluded from GST under Schedule III and CBIC FAQs.
• Prior rulings of Maharashtra and Karnataka AARs supported the pure agent treatment in similar circumstances.

The AAR accepted the applicant's arguments, emphasizing the contractual framework, separate invoicing, and the nature of stipend as remuneration for trainee services to industry partners, thereby excluding stipend reimbursement from GST.

Significant Holdings

The Authority for Advance Ruling held:

"The reimbursement by Industry Partner to the applicant (YSL), of the stipend paid to the trainees, does not attract tax under the GST Laws."

The AAR established the principle that where an applicant acts as a pure agent of the recipient of supply (industry partner), fulfilling all conditions under Rule 33 of the CGST Rules, the reimbursement of stipend paid to trainees is excluded from the value of supply and hence not subject to GST.

The ruling clarified that the applicant's role as a pure agent is evidenced by:

• Contractual agreements authorizing the applicant to incur expenditure on behalf of industry partners.
• Separate indication of stipend reimbursement in invoices.
• Non-retention or use of stipend funds for own interest.
• Provision of additional taxable services separately invoiced and subject to GST.
• The stipend paid to trainees is remuneration for services rendered to industry partners and excluded from GST under Schedule III and CBIC clarifications.

The AAR distinguished the instant case facts from the Karnataka Team Lease case, emphasizing the different contractual and operational arrangements.

Accordingly, the AAR answered the sole remaining question in the negative, holding that the reimbursement of stipend paid to trainees by the applicant acting as a pure agent does not attract GST. The other two questions on reimbursement of insurance premium and uniform/safety shoes expenses were withdrawn by the applicant and thus not answered.

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