2018 (11) TMI 337 - AAR - GST

Levy of GST - Valuation - Toll Taxes reimbursed by its clients - includibility - reimbursement charges - deduction under Rule 33 from the value of supply, being expenditure incurred as a pure agent - Held that - The toll is charged for providing the service by way of access to a road or bridge (SAC 9967). The Applicant, being the owner of the vehicles, is the recipient of the service provisioned on payment of toll. The Applicant admittedly is the beneficiary and liable to pay the toll, which is compulsorily levied on the vehicles. The expenses so incurred are, therefore, cost of the service provided to the Banks - Reimbursement of such cost is no disbursement, but merely the recovery of a portion of the value of supply made to the Banks. The Applicant is, therefore, not acting in the capacity of a pure agent of the Bank while paying toll charges. Such charges are costs incurred, so that his vehicles can access roads/bridges to provide security services to the recipient - Toll charges paid are not, therefore, to be excluded from the value of supply under Rule 33. GST shall, therefore, be payable at the applicable rate on the entire value of the supply, including toll charges paid. Ruling - Toll charges paid are not to be excluded from the value of supply under Rule 33. GST shall, therefore, be payable at the applicable rate on the entire value of the supply, including toll charges paid. The Applicant is not acting as a pure agent of the Bank while paying toll charges, which are the cost of the service provided to the Banks so that his vehicles can access roads/bridges to provide security services to the recipient.

Summary

Issues:
- Chargeability of GST on Toll Taxes reimbursed by clients
- Ability to claim Toll Taxes as a deduction under Rule 33

Analysis:
1. Chargeability of GST on Toll Taxes reimbursed by clients:
The Applicant sought a ruling on the chargeability of GST on Toll Taxes reimbursed by its clients or the ability to claim it as a deduction under Rule 33. The Applicant provides security services to banks and transports cash/coins/bullion, incurring toll charges reimbursed by the client banks. The Applicant argued that toll charges should be excluded from the value of supply under Rule 33 as expenses incurred as a pure agent. However, the agreements with client banks did not specifically authorize the Applicant as a pure agent or acknowledge toll charges as their liability. The Applicant admitted to owning the vehicles and being the recipient of the service provisioned on payment of toll, making toll charges part of the cost of services provided to the banks. The reimbursement of toll charges was deemed not a disbursement but a recovery of a portion of the value of supply made to the banks, making the Applicant not a pure agent in this scenario.

2. Ability to claim Toll Taxes as a deduction under Rule 33:
Rule 33 of the GST Rules allows for the exclusion of costs incurred by a supplier as a pure agent of the recipient of supply from the value of supply under certain conditions. The rule defines a pure agent as a person who acts on behalf of the recipient, does not hold any title to the goods or services procured, does not use them for personal interest, and receives only the actual amount incurred. In this case, the Applicant failed to meet the criteria of a pure agent as the toll charges were deemed part of the service cost provided to the banks, and the Applicant was not acting as a pure agent while paying toll charges. Therefore, the toll charges were not to be excluded from the value of supply under Rule 33, and GST was held payable on the entire value of the supply, including toll charges paid.

In conclusion, the ruling stated that toll charges paid were not to be excluded from the value of supply under Rule 33, and GST was deemed payable at the applicable rate on the entire value of the supply, including toll charges paid. The Applicant was not considered a pure agent of the bank while paying toll charges, as the charges were deemed part of the service cost provided to the banks for the provision of security services. The ruling was declared valid subject to the provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.