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2022 (3) TMI 574

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..... medical and accident insurance obtained for welfare of trainees as agreed by the Industry Partner - applicant, though collecting GST on the entire transaction value including the reimbursement amounts, is of the view that the reimbursement received towards stipend and cost of medical accident insurance is an expenditure or cost incurred as pure agent of the Industry Partner as per rule 33 of the CGST Rules 2017 and therefore such reimbursements should be excluded from the taxable value and hence GST should not be charged on such reimbursements. Whether the applicant qualify to be a pure agent of the Industry Partner or not? - HELD THAT:- A pure agent would be a person (supplier i.e. applicant in this case) who enters into a contractual agreement with the recipient of supply (Industry partner in this case) to act as recipient s pure agent to incur expenditure or costs, in the course of supply of goods or services or both. It is an admitted fact that the applicant herein is raising invoice for stipend and insurance cost and distributes the same to the trainees on receipt of the said amount and also not furnished any contractual agreement to incur expenditure first and to claim the s .....

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..... art of training agreement and therefore the said reimbursement is not chargeable to GST? b. Whether, the Applicant is acting as a pure agent of the Industry partner to the extent of reimbursement received against cost of medical and accident insurance obtained for the benefit of trainees by the Applicant and reimbursed by the Industry partner as per the training agreement and therefore the said reimbursement is not chargeable to GST? 4. BRIEF FACTS OF THE CASE: The applicant furnishes the following relevant facts having a bearing on the questions on which advance ruling has been sought. 4.1 TeamLease Education Foundation (hereinafter referred as Applicant' or 'TLEF') is a section 25 company, registered under the provisions of the Companies Act, 1956, engaged in charitable activities and obtained registration under section 12AA of the Income Tax Act 1961, with an objective to promote and sponsor educational institutions including universities dedicated to inculcation of domain specific, workplace relevant and life related skills and competences for enhancing employability, work culture, enhanced productivity, economic development, social harmony and social life throu .....

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..... ;stipend') to the Applicant for the purpose of paying to the trainees in consideration of dedicated deployment of the trainees and in accordance with the NEEM Regulations. c. Reimbursement of cost of medical and accident insurance obtained by the Applicant for the benefit of the Trainees. d. Payment of administrative fee, sourcing fee, fee for enrolment and other fee charged by Applicant towards the services provided in its own account e. Ensure health, welfare and safety standards during the training and compliance with other terms and conditions as per the agreement. 4.6 The applicant is entrusted with the following obligations as per the training agreement:- a. To execute an agreement with each trainee, prior to deploying the Trainees to the Industry partner for the Training In accordance with NEEM Regulations. b. Furnish appropriate data to the Industry partner in relation to the Trainees. c. Undertake administrative tasks as may be required from time to time. d. Implementation of digit workforce solution (DWS) for attendance and leave management of Trainees. e. Assistance in enrolment of Trainees under various courses like Bachelor of Management Studies (B .....

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..... tation of Law : The applicant furnishes their interpretation of law, in respect of the questions on which advance ruling has been sought, as under: 5.1 The Applicant contends that they are acting as pure agent of the Industry partner in as far as providing stipend and incurring cost of insurance and submits the following in their support. Section 9(1) of the KGST Act prescribes the levy and collection of the Karnataka State Goods and Services Tax which states that, "Subject to the provisions of sub-section (2), there shall be levied a tax called the Karnataka State goods and services tax on all intra-state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person." 5.2 Thus, KGST is levied on the value of supply determined under section 15 of the KGST Act. Now, as per section 15 of the KGST Act:- "(1) The value of a supply of goods or services or both shall be the .....

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..... r as may be prescribed." [Emphasis supplied] 5.3 It is clear from the plain reading of section 15 that KGST is leviable on the transaction value if it satisfies the following conditions:- a. Transaction value should be the price paid or payable for the said supply b. The supplier and recipient of the supply are not related c. Price should be the sole consideration for the supply Further, the transaction value shall include the incidental expenses incurred by the supplier on its own in relation to supply of goods or services or both. 5.4 However, in case, the aforesaid conditions of section 15(1) are not fulfilled, then the value of taxable supply is determined by virtue of section 15(4) which has prescribed Chapter IV of the KGST Rules, 2017 containing various rules (Rule 27 to Rule 35) for determination of value of supply in certain cases. 5.5 One of the such case is determination of value of supply of services in case of pure agent as envisaged under Rule 33 of the KGST Rules which prescribes the following: "Notwithstanding anything contained in the provision of this chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient .....

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..... as maybe deemed appropriate by TeamLease for the Training, from time to time Clause 3 STIPEND In consideration of dedicated deployment of the Trainees to the company in accordance with this Agreement, the Company shall pay a monthly stipend ("Stipend") in the Bank Account as detailed in Annexure B, to be utilized by TEAMLEASE solely for the purposes of paying the Trainees in accordance with the NEEM Regulations. Which shall be equal to or greater than the prescribed minimum wages for unskilled category under applicable law and employee compensation insurance premium on or before the [2nd] day of each calendar month. For the avoidance of doubt it is clarified that the Stipend payable shall be a single consolidated amount and shall not be subject to further withholding tax, namely Tax Deducted at Source or any other statutory deductions or payments, except for income tax if applicable In addition to the Stipend, the company shall pay an administration fee of ₹ 375/- per trainee per month with GST extra to TEAMLEASE for assisting the Company with the administrative tasks for deployment of Trainees to the Company for the Training. TEAMLEASE shall, as agreed upon w .....

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..... icant has drawn below the comparative analysis of relevant conditions prescribed under Rule 33 and the relevant terms forming part of training agreement: Conditions prescribed under Rule 33 of the KGST Rules Reference from the training agreement Conditions for pure agent; (i) The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; Clause 3: "In consideration of dedicated deployment of the Trainees to the Company in accordance with this Agreement, the Company shall pay a monthly stipend ("Stipend") in the Bank Account as detailed in Annexure B, to be utilized by TEAMLEASE solely for the purposes of paying the Trainees in accordance with the NEEM Regulations, which shall be equal to or greater than the prescribed minimum wages for unskilled category under applicable law and employee compensation insurance premium on or before the [2nd] day of each calendar month. The Company hereby agrees to pay TEAMLEASE towards the cost of Medical and Accident Insurance provided to the Trainees for the respective cover amounts agreed to as per the prevailing premium thereof (As per the be .....

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..... unt incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. The applicant is recovering actual amount of stipend paid to Trainees and cost of medical and accident insurance from the Industry partner. Further, Applicant is separately charging fee for administration, sourcing and enrolment towards the services provided on its own account 5.12 In light of the above, it is clear that the reimbursement received from the Industry towards the stipend paid to Trainees and the cost of medical and accident insurance incurred for benefit of the Trainees are in the nature of pure agent services provided by Applicant and therefore such reimbursement should not form part of taxable value. 5.13 With regards to payment of stipend, the Applicant neither retains any amount from the reimbursement received nor receives any separate consideration form Trainees. It merely acts as an intermediary between Trainees (supplier of service) and Industry Partner (recipient of service) for processing of stipend as specified under NEEM Regulations. Thus, the applicant is merely a conduit for the payment of stipend and the actual service is suppl .....

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..... ny; processing stipends of the trainees; making payment of stipend to the trainees ; providing uniform and safety shoes to the trainees ; taking Insurance policies for trainees towards Employee Compensation and Personal Accident Policy. For all such services rendered the applicant is paid service charge per month per trainee on which GST is being discharged (as per their submissions). During the duration of the training, the trainees are paid monthly stipend. 5.10 Regarding the issue before us in respect of stipend paid to the trainees by the applicant, the industry partner that provides training to the trainees is required to pay stipend to the trainees. This stipend is not directly paid to the trainees by the companies, rather the same are routed through the applicant. The applicant has submitted that the entire amounts received as stipend from the companies are paid to the trainees without any amount being retained. Thus, the applicant is only acting as an intermediary in collecting the stipend from the companies and then disbursing the same to the trainees in full since the applicant is not allowed to make any deductions from the stipend before disbursing the same to the trai .....

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..... this amounts to reimbursement of the premium paid and hence this amount reimbursed would not be taxable in the hands of the applicant." 5.18 Considering all the above facts and legal provisions the Applicant makes the following submissions:- * The Applicant is acting as a pure agent of the Industry partner to the extent of reimbursement received towards stipend paid to trainees on behalf of Industry partner as part of training agreement and therefore the said reimbursement is not chargeable to GST * Further, the applicant is also acting as pure agent to the extent of reimbursement received against cost of medical and accident insurance obtained for the benefit of Trainees by the Applicant and reimbursed by the Industry partner as per the training agreement and therefore the said reimbursement is not chargeable to GST. In view of the above submissions, the applicant requests for pronouncement of the ruling on the questions raised in the instant application and also requests for an opportunity of personal hearing. PERSONAL HEARING PROCEEDINGS HELD ON 06.01.2022 6. Ms. Disha, Advocate & Authorised Representative of the applicant appeared for personal hearing proceedings h .....

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..... e or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, - (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation. - For the purposes of this rule, the expression-pure agent means, a person who- a. enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; b. neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; c. does not use for his own interest such goods or services so procured; and d. recei .....

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..... r claiming the reimbursement but receives the said amounts and disburses the same and hence the applicant is not fulfilling the required condition. 15. Rule 33 (iii) of the CGST Rules 2017 stipulates that the applicant must procure certain supplies from the third party, as a pure agent of the recipient of supply, which are in addition to the services he supplies on his own account. In the instant case, the applicant has not furnished any information with regard to procurement of supplies from the third party i.e. trainees. Thus the applicant is not fulfilling the required condition. In view of the above the applicant does not qualify to be a pure agent and hence the GST is chargeable on the entire transaction value. 16. In view of the foregoing, we pass the following RULING 1. The Applicant does not qualify to be a pure agent of the Industry partner to the extent of reimbursement received towards stipend paid to Trainees on behalf of Industry partner as part of training agreement and therefore the said reimbursement is chargeable to GST. 2. The Applicant does not qualify to be a pure agent of the Industry partner to the extent of reimbursement received against cost of medical .....

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