GST Law -Commission paid to Pigmy Agents by Credit Co-operative Society/Bank taxable under RCM?

[GANESH KANCHAN]

GST department has issued notice to our clients stating that "commission paid" should be treated as "agency commission", and not to be treated as "Salary or wages" as pigmy agent operates on behalf of the Bank for limited purpose of deposit collection, without being entitled to any employment benefits such as salary, PF, Gratuity etc. The agents remuneration is purely in the nature of commission, directly linked to the amount of deposit mobilised. In support of this, department relying on Notification no 13/2017-Central Tax (Rate) and Notification no 29/2018 -Central Tax (rate) dated 31.12.2018. Is the action of the department tenable in law? Your views please  

[Sadanand Bulbule]

The following Entry No. 12 of Notification No. 13/2017-CTR as amneded reads as under. So double check whether the Pigmy Agent is recognised as Business Facilitator (BF) to a banking company by the RBI guidelines. If yes, then there is legal force in the notice issued by the department.

12.

Services provided by business facilitator (BF) to a banking company

Business facilitator (BF)

A banking company, located in the taxable territory

[GANESH KANCHAN]

Thank You so much for your reply

[Sadanand Bulbule]

Also refer Entry No. 39 of Notification No. 12/2017-CTR dated 28/06/2017 providing GST exemption on the  following services:

39

Heading 9971 or Heading 9985

Services by the following persons in respective capacities – (a) business facilitator or a business correspondent to a banking company with respect to accounts in its rural area branch; (b) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in entry (a); or (c) business facilitator or a business correspondent to an insurance company in a rural area.

[Sadanand Bulbule]

Explanation appended to the Notification No. 12/2017-CTR dated 28/06/2027 [supra]

(o) “business facilitator or business correspondent” means an intermediary appointed under the business facilitator model or the business correspondent model by a banking company or an insurance company under the guidelines issued by the Reserve Bank of India;

 

[Ryan Vaz]

The department’s action is legally tenable in most factual situations,
IF:

Pigmy agents are not on regular payroll,

They do not receive salary benefits,

They receive commission,

Their role is mobilization/recovery of deposits,

The co-operative society is engaged in banking-like activities.

Such agents fit within the meaning of “recovery agents / business correspondents” under RCM).

The only situation where the demand becomes untenable:

If you can prove a genuine employer-employee relationship, supported by documented HR structure and benefits.

[Sadanand Bulbule]

Pigmy Agent = Deposit Collector

Recovery Agent = Debt Collector

 

[KASTURI SETHI]

Commission is taxable. The departments viewpoint is correct. 

[GANESH KANCHAN]

Thank You Sir

Here the bank or co-operative society is not appointing Pigmy agents for collection of deposits or recovery of loan funds (as a precondition to loans sanctioned). Moe often Pigmy agents apply for job opportunity for their livelihood, bank or co-operative Society after scrutinising documents and after taking "security deposit" appoint such agents. Relying on the same notification, department is also demanding RCM on Arbitration fees paid by the banks (in fact bank collects it from borrower by debiting his account - its basically reimbursement of expenses), Jewel Appraisal fees etc. Is it tenable?

[PAWAN KUMAR]

Dear Sir,

As per my view, Amount paid to Pigmy Agents as commission is liable for GST under RCM. 

[Padmanathan KV]

Is there any contract? is so what does it say? Also is TDS under Income Tax deducted? if so, under which section?

AI Summary

Commission to pigmy agents taxable under reverse charge if they act as business facilitators rather than employees.
Commission paid to pigmy agents is taxable under the reverse charge if agents function without employment benefits and act as business facilitators/business correspondents or intermediaries for deposit mobilisation or recovery; exemptions for BF/BC in rural branches may apply, and a documented employer-employee relationship is the principal defence against such taxation.