GST on payment received through Foreign Commission Agent, Goods and Services Tax - GST

[Abhi Singh]

Hi,

We are a services company based in India and need help with GST related queries below for Foreign Commission Agent. Your help will be highly appreciated.

CASE

M/s A (Principal - an IT Services company based in India doing Export of Services and had also signed LUT) signs Agent Agreement with M/s B (a non-resident entity/foreign company based in USA). As per agreement, M/s B's responsibility is to generate new business for M/s A in his country (USA) and also collect payment on behalf of M/s A and then deposit it to M/s A's bank account in India. M/s B is also required to remain engaged with the customers, do follow ups, provide updates etc until the order is completed.

M/s A will then pay 70% commission to M/s B for all his services, on the basis of total completed sales and payments deposited by him in M/s A account.

Q1: As we read online, M/s B must raise an invoice on behalf of M/s A to qualify the definition of FOREIGN AGENT. What does this actually mean?

The invoice created by B should be GST compliant as per Indian Laws? Or M/s B must raise invoice as per laws in his country but with M/s A's name/details on it? We are confused by the meaning of "On behalf Of". Please help with the format and details it should have in the above scenario.

Q3: Since B is supposed to collect payment from customers, the money will go From Customer's account in USA to M/s B's account in USA to M/s A's bank account in India. Now, the invoice created by M/s A against this payment should be on the name of End Customer or the M/s B (agent)?

Q4: We are GST Exempted - Export of services. Will we be liable to pay GST under this arrangement?

Q5: Is this a valid arrangement as per definition of Agent?

Q5: As we understand, we do not need to deduct any TDS from the commissions paid to this foreign Agent. Is this correct?

Please help. It's urgent. Thank you for your help.

Posts / Replies

[KASTURI SETHI]

Your queries revolve around two major factors i.e. What is intermediary ? What is place of supply ? You require answer for determination of 'Export of service'. Definition of intermediary is provided under Section 2(13) of IGST Act and Place of Supply is under Section 13 (8) of IGST Act. Section 13(12) of IGST is also applicable in this scenario.

Query-wise reply is as under :-

1. B is an intermediary. He is working for and on behalf of A. B should act as pure agent. B will be intermediary only if he is concerned with the amount of commission only. Whole proceeds must not be credited into his account (B's Account) Read definition of intermediary. The whole concept will be clear to you.

2. B is located in non-taxable territory. A is under RCM. A is responsible for discharging GST liability. It is import of service by A from B.

3. B will raise invoice to the ultimate consumer.

4. B is not liable to GST as mentioned above.

5. Reply is possible only after going the terms and conditions of agreement.

6. As in 5 above.

It is an interim reply. Complete and final reply is possible only after going through agreement. Email me copy of agreement. My email ID is [email protected]

No consultation fee will be charged for scrutiny of the agreement/contract as your queries are under the auspices/patronage of TMI.

[Abhi Singh]

Dear Mr. Sethi,

Thanks for your answers and directions.

It's now clear that as per intermediary definition, B must serve as Pure Agent only and should not collect payment on behalf of A (because Payment Collection in itself is categorized as a separate service and may attract taxes). Which I think is fine?

But, we are willing to setup "B" as Del Credere Agent with payment guarantee.

1. So, with Del Credere (DC) Agent, if a customer defaulted on payment (bankrupted, absconding, deny acceptance, etc), then Agent B must pay A as guarantor. For such payment from B, how will A record it in accounts and GST. CASE: -

"A sent Invoice to Customer C, where C failed to make payment and B being DC Agent must pay to A". Do I need to create new invoice for B for this Guaranteed Payment. Or simply record this payment against the Invoice i sent to Customer "C" and update on GST?

2. I believe that GST will still be exempted irrespective of your answer for #1 above?

3. Can a DC Agent or a Pure Agent be an Agent and a Customer both at same time? For eg, our agent do get his personal work done by us which we bill him as per Export of Service and at same time pay him commission for being our agent for new orders.

4. Can a DC/Pure Agent (B) claim commission for the export order placed by his self/own organization to (A) ? Never as per laws or depends on contract?

4. Is there any maximum limit prescribed by govt. for % commission paid to Foreign Agent in lieu of generating export orders for Indian company? Can it be 70-80% if needed be?

This is the agreement template that we are following for our case:

https://www.fibogroup.com/u/document_file/212/agency_agreement.pdf

[KASTURI SETHI]

Dear Sir,

I could not open the agreement Some technical problem may be. Pl. email me.

[KASTURI SETHI]

Now it is crystal clear that 'B' is not a pure agent but only an agent as defined under Section 2(5) of CGST Act. D.C. Agent is covered under this definition. 'B' does not qualify the definition of 'intermediary' as defined under Section 2 (13) of IGST Act. ’B’ is engaged in supply of multiple services but not taxable for 'B', being located in non-taxable territory. B is supplying services for and on behalf of ‘A’ located in India. When any person works for and on behalf of another person (Principal), he (here 'B') gets the status of 'job-worker' and for whom he works is jobbee (Principal) . Here the whole liability to discharge GST is cast upon ‘A’ under RCM. It makes no difference whether invoice is issued by B to C on behalf of A or direct by A to C. The whole proceeds are to be accounted for in the account of ‘A’

Query-wise replies :

Q. Is there any maximum limit prescribed by govt. for % commission paid to Foreign Agent in lieu of generating export orders for Indian company? Can it be 70-80% if needed be?

A. In my view there is no such restriction /limit.

Q. Can a DC/Pure Agent (B) claim commission for the export order placed by his self/own organization to (A) ? Never as per laws or depends on contract?

A. It depends upon the terms and conditions of the contract.

Q. Can a DC Agent or a Pure Agent be an Agent and a Customer both at same time? For eg, our agent do get his personal work done by us which we bill him as per Export of Service and at same time pay him commission for being our agent for new orders.

A. I think there is no such restriction. Only separate records are to be maintained for identification.

Q. I believe that GST will still be exempted irrespective of your answer for #1 above?

A. Reply is in first para above.