GST on reimbursement of expenses

[Kaustubh Karandikar]

XYZ(India) supplying services of Freight Forwarders / Clearing and forwarding agents and are mainly in providing transportation services in relation to import and export by sea and air. During providing these services, they pay on behalf of their client certain charges to different authorities and then get it reimbursed from their client at actuals. 1) Is XYZ required to pay GST on these charges recovered? If no, are they required to proportionately reverse the input tax credit for common services since not charging GST on reimbursement?

[Ganeshan Kalyani]

Sir, clearing and forwarding agents must be satisfying the condition of pure agent. If that is the case then the principal on whose name the bill must have been raised would be able to take ITC even though the payment to third party is made by clearing and forwarding agent. And since clearing and forwarding agent will not be claiming ITC the reversal of common ITC does not arise.

[KASTURI SETHI]

I fully concur with the views of Sh.Ganeshan Kalyani Ji. Such reimbursement does not conform to the parameters of common services for the purpose of reversal of ITC.

[Shilpi Jain]

The amount of expense which is received as reimbursement from the customer would not fall under the category of exempt supply and thereby would not require reversal of common ITC to the extent of these pure agent reimbursement. This is only and exclusion from the value.

AI Summary

Reimbursement as pure agent excludes GST treatment, allowing the principal to claim input tax credit without ITC reversal. When an agent meets the pure agent conditions - third party charges identifiable to the principal, no ITC claimed by the agent, and liability resting with the principal - reimbursed third party charges are excluded from the agent's taxable value, do not constitute exempt supplies for ITC reversal, and permit the principal to claim input tax credit for those charges.