2019 (9) TMI 990 - AAR - GST

Application for GST registration - services provided are export of services - Zero rated supply - pure agent services - supply of such services under LUT - levy of GST - reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc. - management fees charged by us to the Company for managing the job outsourced. HELD THAT - The question with regard to services provided are export of services and supply of such services under LUT are withdrawn and not dealt with. Whether GST is applicable on the reimbursement of expenses such as salaries, rent, office expenses, travelling cost etc.? - HELD THAT - The applicant is not a pure agent. In the subject case the applicant is making payments to vendors for supply received by them. The applicant is not making payment to the third party for the services rendered by such third party to the recipient of supply, under a contract for supply. In the subject case the recipient of supply is not liable to make payment to third parties and therefore it can be said that the applicant is not making payments on behalf of the recipient of supply. The applicant has cited CBDT Circular no. 107/26/2019-GST of CBDT dated 18th July, 2019 and have contended that they are providing ITes services as defined in Section 10TA of Income Tax Rules, 1962 to MSS Marine Ltd on their own account. The said Circular is not applicable to GST Laws and therefore we are not discussing the same in this order. The reimbursement received by the applicant pertains to establishment costs which would be incurred by them for running their office in India. In any normal business such expenses are borne by the supplier of service and it is but natural that they would include such costs in the value to be received from the recipient of their services - In the subject case the said costs, are termed as reimbursements and are recovered in addition to management fees from their clients and therefore it is nothing but additional consideration charged for the supply in this case. The provisions of Section 15 of the CGST Act, which deals with the transaction value are very clear and as per the said provisions the valuation of supply will include all costs, including the employee cost provided by one distinct entity to the other distinct entities. Whether GST will be applicable on the management fees charged by us to the Company for managing the job outsourced to us? - HELD THAT - Since, the applicant is an intermediary, as per the provisions of Section 13 (8)(b) of IGST Act, the place of provision of the service in the subject case is the location of the supplier of services i.e. the applicant and since the place of supply is in taxable territory, we hold that they will be liable to discharge GST on such services provided by them. Therefore we hold that GST will be applicable on the management fees charged by the applicant.

Summary

Issues Involved:
1. GST registration requirement for export of services.
2. Supply of services under Letter of Undertaking (LUT).
3. GST applicability on reimbursement of expenses.
4. GST applicability on management fees.

Detailed Analysis:

1. GST Registration Requirement for Export of Services:
*Withdrawn by the applicant.*

2. Supply of Services under LUT:
*Withdrawn by the applicant.*

3. GST Applicability on Reimbursement of Expenses:
The applicant sought clarity on whether GST is applicable on reimbursements for expenses such as salaries, rent, office expenses, and travel costs. The applicant argued that these reimbursements are received in the capacity of a "pure agent" and should not be taxable under GST laws.

The Authority observed that the applicant is not acting as a pure agent. The conditions for being a pure agent, as per Rule 33 of the CGST Rules, are not satisfied. Specifically, the applicant is making payments for services received by them, not on behalf of the recipient of supply. Moreover, the recipient of supply is not liable to make payments to third parties, and the applicant is not making payments under a contract for supply between the recipient and the third party. Therefore, the applicant is not a pure agent, and the reimbursement of expenses is considered additional consideration for the supply of services.

The Authority concluded that the reimbursement of expenses, being part of the taxable supply/value as per Section 15(2)(c) of the CGST Act, is subject to GST.

4. GST Applicability on Management Fees:
The applicant contended that the management fees charged for managing the outsourced job qualify as "export of services" and should be zero-rated under Section 16 of the IGST Act, 2017. They argued that the services rendered meet the criteria for export of services, including receipt of payment in foreign convertible exchange.

The Authority examined the nature of the services provided, which included handling communications, drafting contracts, preparing reports, and traveling to various countries to meet with port agents, shippers, and charterers. It was determined that the applicant is arranging or facilitating the supply of goods or services between various parties, thus acting as an intermediary as defined under Section 2(13) of the IGST Act, 2017.

Since the applicant is an intermediary, the place of supply is the location of the supplier of services (i.e., the applicant) as per Section 13(8)(b) of the IGST Act. Consequently, the services provided do not qualify as export of services, and GST is applicable on the management fees charged by the applicant.

Conclusion:
The Authority ruled affirmatively on both remaining questions:
- GST is applicable on the reimbursement of expenses such as salaries, rent, office expenses, and travel costs.
- GST is applicable on the management fees charged by the applicant for managing the job outsourced to them.