Service to related person

[Kaustubh Karandikar]

XYZ (Proprietory Concern) and PQR(Proprietory Concern) are related persons (Brothers). On behalf of PQR, XYZ had paid the amount of Income Tax and other taxes to Govt. and then subsequently recovered from PQR. Will this amount to service provided to related person under Schedule – I of Section – 7 and even if there is no consideration, XYZ will be liable to pay GST on it?

[Shilpi Jain]

This will not be liable as there is no supply. This is merely an on behalf payment...

[Shilpi Jain]

Just because 2 persons are related the provisions should not be stretched to such an extent to tax each and every kind of transaction between them.

[KASTURI SETHI]

XYZ's activity is not in the course of business or furtherance of business. Hence out of scope of supply as well as Schedule-1.

[Ganeshan Kalyani]

Is this not a support service?. Is the transaction fulfills pure agent concept?

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

(i) Is the transaction fulfills pure agent concept ?

Yes, Sir. This transaction can be termed as pure agent's activity.

(ii) Is this not a support service ?.

This transaction/activity cannot be termed as support service inasmuch as this is neither the intention of legislature nor Govt's to tax such transaction. Calling such activity a support service, means stretching a law.

AI Summary

Pure agent concept: payments made on behalf of a related person are not taxable supplies under GST rules. Payments of taxes by one related proprietor on behalf of another, later recovered from that person, qualify as a pure agent activity and do not amount to a taxable supply; where the payer does not provide a business activity but merely facilitates statutory payments for the recipient, the transaction is out of scope of supply and not captured by Schedule I as a support service.