Amount paid on behalf of related party

[Kaustubh Karandikar]

XYZ is making payment to various parties on behalf of the persons / entities which are related to XYZ. The amount so paid is debited to the respective person / entities account. This being paid on behalf of related parties; will it amount to rendering service to related parties and XYZ will be liable to pay GST on it even if no consideration is received from related parties?

[KASTURI SETHI]

Answer is 'yes'.This activity is in the course or furtherance of business. Hence covered under Serial No.2 of Schedule-1 (Section 7). Moreover XYZ is working for and on behalf of related parties and XYZ can be termed as 'intermediary'.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Sethi.

[KASTURI SETHI]

Sh.Govindarajan Ji,

Thanks a lot for support, Sir.

[CASusheel Gupta]

In this case, XYZ is making payment on behalf of related parties and their account is debited.

It can be treated as loan to related party and consideration shall be in the form of interest on loan, which is exempt from GST.

[KASTURI SETHI]

Dear Sh.Sushil Gupta Ji,

Agreed with your view regarding the aspect of 'interest' but what about the activity/role of 'intermediary'. Will you please throw light on this aspect ? Thanks a lot.

[CASusheel Gupta]

Kasturi Sir

Definition of “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

In this case XYZ is not facilitating the supply of goods/services. Instead his role comes after the supply has already been made. Further, intermediary supplies his services, doesn't lend. In this case, XYZ is actually lending money to his related persons and on the instructions of these related persons payment is made to third parties.

[KASTURI SETHI]

O. K. Sir I agree with you.

AI Summary

Intermediary services: payments made on behalf of related parties may attract GST unless treated as exempt loan interest. Payments made by a business on behalf of related parties may be treated as a taxable supply if the payer functions as an intermediary arranging or facilitating services; alternatively, the payments can be characterised as loans or advances to related parties, with consideration being interest that may be exempt from GST. The legal issue hinges on whether the payer's role is facilitative (intermediary) or financial (lender) and whether the activity constitutes a supply in the course or furtherance of business.