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TMI Blog2022 (3) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 through offer of technology supported, industry relevant and low-cost academic programs with employment at the heart of academic offerings. 3. In view of the above, the applicant has sought advance ruling in respect of the following questions:- a. Whether, 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? 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to NEEM trainees. 4.4 The Applicant has entered into training agreements with various companies (industry partners) for imparting practical training and has registered them as training partner in accordance with NEEM Regulations. The applicant furnished a copy of sample agreement (Training agreement' or 'agreement') with one of the clients M/s LG Electronics India Private Limited (Industry partner'). 4.5 The Industry partner, as per the training agreement, is under the following obligations:- a. Providing adequate facilities (viz. requisite personnel, facilities, industry knowledge and infrastructure) in accordance with the NEEM Regulations for the training. b. Payment of monthly stipend ('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, welfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of Industry partner b. Cost of medical and accident insurance obtained for benefit of the Trainees and reimbursed by Industry partner. 4.10 However, the Applicant is of the view that the reimbursement received towards stipend and cost of medical and accident insurance is an expenditure or costs incurred as a pure agent of the Industry partner (recipient of supply) as per rule 33 of the CGST Rules 2017. Therefore, such reimbursements should be excluded from the taxable value and hence, GST should not be charged on such reimbursements. 4.11 Considering the aforesaid facts, the Applicant seeks to obtain a ruling with regard to the questions of law and thus files the instant application. 5. Applicant's Interpretation 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if,- (i) Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, in order to determine the taxability of various amounts charged by the Applicant from the Industry partner, we need to first evaluate the relevant terms of the agreement which is provided below: Para reference Particulars as per training agreement Clause 2 SCOPE OF TRAINING Clause 2.1 Subject to the terms of this Agreement, the Company is hereby registered by TeamLease as Training partner in accordance with NEEM Regulations. The Trainees shall under no circumstance be deemed to be the employees of the Company or of TeamLease Clause 2.2 The Company shall be solely responsible for providing adequate facilities in accordance with the NEEM Regulations or 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accident insurance Insurance obtained for the benefit of trainees and reimbursed by Industry partner Payment made on behalf of Industry partner 5.9 From above, the reimbursement received form Industry partner towards stipend paid to Trainees and the cost of medical and accident insurance would be eligible for deduction from the transaction value since such expenditure are incurred purely on behalf of Industry partner, provided the relevant conditions prescribed under Rule 33 of the KGST Rules, 2017 gets satisfied. 5.10 Further, GST would be payable only on the fee towards administration, sourcing of trainees and enrolment. 5.11 In this regard, the Applicant 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the goods or services or both so procured or supplied as pure agent of the recipient of supply; The Applicant is only a conduit for the payment and the actual service is provided by the Trainees to the Industry partner and the Industry partner is liable to make the payment of consideration (c) Does not use for his own interest such goods or services so procured; and The applicant is providing services as per NEEM regulations. Further, the applicant doesn't retain any portion of the stipend and insurance premium. It is merely acting as an intermediary of the Industry partner. (d) Receives only the actual amount 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for mobilizing trainees under NEEM Scheme of Government of India as per regulations under notification issued by All India Council for Technical Education (AICTE), for providing trainees on-the-job practical training in industries to enhance their future employ ability, For that purpose, or which they enter into agreements with various companies/ organizations (called as industry partner) who impart actual practical training to the students. The applicant, in lieu of agreements with the industry partners, is engaged in preparing monthly attendance record of the trainees, getting it certified from the Company; 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment and the actual service is by the trainee to the trainer. Therefore this amount is not taxable in the hands of the applicant. 6.5 Regarding the third issue of payment of Group Insurance and Workmen compensation scheme is made by the applicant with the trainee being beneficiary. If any tax is liable on this transaction, it shall be collected by the insurance company, and the insurance company would be the service provider and the applicant will be the service recipient. It the same is reimbursed to the applicant by the trainer company as per the terms of the contract, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore such reimbursements should be excluded from the taxable value and hence GST should not be charged on such reimbursements. Thus the applicant sought advance ruling in respect of the said issue in two questions. 11. In view of the above, we proceed to examine whether the applicant qualify to be a pure agent of the Industry Partner or not. In this regard, we invite reference to rule 33 of the CGST Rules 2017, which is as under:- 33. Value of supply of services in case of pure agent.-Notwithstanding anything contained in the provisions of this Chapter, the expenditure 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 sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opies of Course Registration Letters, addressed to two different trainees by email dated 28.01.2021. Clause 17 of the said letter stipulates that "The stipend for a particular month shall be paid on or before the 10th of the following month", which clearly indicates that the applicant receives the stipend amount from the Industry partner by 2nd of the month and distributes / disburses the same by 10th of the month to the trainees. Thus it is proven beyond doubt that the applicant is not incurring the expenditure towards the stipend/insurance etc. & later 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 quali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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