2022 (11) TMI 259 - AAR - GST

Levy of GST - Pure services or not - reimbursement of tree cut compensation and land compensation amount paid to farmers and land owners during the course of execution of work - HELD THAT - Since all the 4 conditions to be a pure agent are satisfied, the Applicant is acting as a pure agent only to the extent of reimbursement of tree cut compensation. But the Applicant is not acting as pure agent to the extent of reimbursement of land compensation as para 1.4 of Special conditions of contract does not mention land compensation i.e there is no contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of services to the extent of land compensation. However, in case if Special conditions of contract is not a part of the main agreement, then Advance Ruling issued in this case does not apply. Reimbursement of tree cut compensation amount paid to farmers and land owners during the course of execution of work is not chargeable to GST as the Applicant qualifies to be a Pure Agent and Reimbursement of land compensation amount paid to farmers and land owners during the course of execution of work is chargeable to GST as the Applicant does not qualifies to be a Pure Agent.

Issues Involved:
1. Applicability of GST on reimbursement of tree cut compensation.
2. Applicability of GST on reimbursement of land compensation.

Detailed Analysis:

1. Applicability of GST on reimbursement of tree cut compensation:

The applicant, a partnership concern registered under CGST and KGST Acts, executes government projects and has been awarded a contract by Karnataka Power Transmission Corporation Limited (KPTCL) for establishing a sub-station. The applicant sought an advance ruling on whether GST applies to the reimbursement of tree cut compensation paid to farmers and landowners during the project execution.

The applicant explained that the compensation amounts paid to farmers are not included in the contract amount and are reimbursed separately by KPTCL. The applicant acts as a pure agent, making payments on behalf of KPTCL and later getting reimbursed. Rule 33 of the CGST Rules, 2017, defines the conditions under which a supplier can be considered a pure agent. These conditions include acting on authorization by the recipient, indicating payments separately in the invoice, and procuring supplies in addition to the services provided.

The agreement between the applicant and KPTCL includes a clause (Section V, clause 1.4 of the special conditions of contract) that specifies tree cutting and tree cut compensation would be paid by the contractor and reimbursed by the owner (KPTCL) as per actuals. This contractual agreement satisfies the conditions for the applicant to be considered a pure agent for tree cut compensation.

Ruling:
The reimbursement of tree cut compensation amount paid to farmers and landowners during the course of execution of work is not chargeable to GST as the applicant qualifies to be a pure agent.

2. Applicability of GST on reimbursement of land compensation:

The applicant also sought clarity on the GST applicability for the reimbursement of land compensation paid to farmers and landowners. The land compensation includes payments for tower foot/foundation compensation and regular land compensation, with rates set by the Deputy Director Land Records (DDLR) based on district magistrate orders.

The special conditions of the contract (Section V, clause 1.4) do not mention land compensation, indicating no contractual agreement for the applicant to act as a pure agent for land compensation. The absence of this agreement means the applicant does not meet the criteria to be considered a pure agent for land compensation under Rule 33 of the CGST Rules, 2017.

Ruling:
The reimbursement of land compensation amount paid to farmers and landowners during the course of execution of work is chargeable to GST as the applicant does not qualify to be a pure agent for this purpose.

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