NIL Rated Supply and ITC Reversal

[Kaustubh Karandikar]

XYZ among other services, is also supplying the services of freight forwarding i.e., transportation of goods by Sea for export. As per the exemption notification, this service attracts ‘Nil’ GST and therefore XYZ are not paying GST on these amounts recovered from the Indian client. Is XYZ required to proportionately reverse the ITC for supplying these ‘Nil’ rated services? In my view yes they are required to reverse. Views of the experts please.

[Shilpi Jain]

Yes reversal would be required.

However, if he can convert himself as a pure agent then no reversal of ITC would be required.

[Shilpi Jain]

I mean if he can act as a pure agent to the exent of the value of this exempt services, ITC reversal will not be required.

[Kaustubh Karandikar]

Madam, XYZ is supplying the services under forward charge with mark up. Therefore, it is not a reimbursement of expenses at actuals and therefore cannot be fitted in to the definition of 'Pure Agent'. Therefore, in my view, proportionate ITC needs to be reversed. Your kind views please.

[RAMASWAMY Advocate]

yes, the concept of "pure Agent" does not arise in this issue in my view.

[Shilpi Jain]

Sir if the margin on freight can be added to the other services provided or if the margin can be disclosed separately then pure agent is possible to be satisfied.

But if it is not feasible to do (which is the fact in many cases) then reversal will be required.

[KASTURI SETHI]

As per the query, (emphasis is on 'among other services' i.e. inter alia), the definition of 'pure agent' cannot be fitted in this scenario. It will be square peg in a round whole. The words, 'Ifs' and 'buts' stand for hypothetical situation.

AI Summary

Input tax credit reversal required for nil rated freight forwarding unless genuine pure agent reimbursement is demonstrable.
Proportionate reversal of input tax credit is required for nil rated freight forwarding supplied as a forward-charge service with a markup, because such supplies do not meet the conditions of a pure agent reimbursement. Only where the supplier truly acts as agent and recovers actual expenses without markup, or the margin can be separated or disclosed to characterise reimbursements, will the pure agent exception avoid ITC reversal.