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TMI Blog2024 (10) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... erator is supposed to pay the charges to the Applicant and not Indian Railways along with GST as per terms and conditions Of Agreement dated 28.06.2023 entered between them (Rajasthan Tourism Development Corporation Ltd. and the operator). Why not the said charges were come under the scope of the pure agent? - HELD THAT:- A pure agent is a registered taxable person who liaises between other suppliers on behalf of his client. Under this concept, While providing services to the client, he also undertakes to receive other ancillary services from other service providers, and incurs expenditure on behalf Of his client - Since the Applicant has not procured any additional service, there is no question of holding to the title of service and therefore they cannot use any service for their own interest. Since none of the condition of Pure Agent enumerated in a rule 33 of CGST Rule,2017is met, the Applicant cannot act as Pure Agent. As they are not Pure Agent, they are required to pay GST on the taxable supply received from Indian Railways. lf charges paid to the Railways on behalf of Operator were not come under the scope of the pure agent or liable to be tax then what will be the tax Rate? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operation and Maintenance Service Agreement with M/S Cube Construction Engg. LTD in Consortium with M/S Easy Toll Solutions Pvt. Ltd (hereinafter collectively referred to as the Operator ). Pursuant to the said agreement dated 28.06.2023, RTDC, as the grantor, bestowed upon the Operator the exclusive right to operate, maintain, and manage the POW luxury tourist train, including the carriage of tourists on the railway administration rail network, in conformity with the provisions of the Bharat Gaurav Train Policy issued by the railway administration. The relevant portion of the agreement is reproduced here in after. B. INTERPRETATION AND UNDERSTANDING OF APPLICANT ON QUESTION RAISED (in brief) The applicant has submitted his interpretation and understanding on question raised. The key points of the agreement and scope of works are summarized as under: 1) Role of Railway Administration in Operation of the Palace on Wheels (POW). (Point no 3.2.1 agreement) 3.2.1 Subject to the provisions contained in the Agreement signed between the RTDC and Railway Administration and in this Agreement, the following services shall be provided by Railway Administration with regards to operation of Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIONS OF THE RAILWAY ADMINISTRATION/RAILWAY ADMINISTRATION(Point no 8 agreement) 8. Obligations of the Railway Administration/Railway Administration 8.1.1 Subject to payment of applicable charges to Railway Administration by the operator in timely manner for operation of the POW, the Railway Administration Shall fulfill its obligations for operation maintenance of the POW/ as mentioned in the Agreement signed between the RTDC and the Railway Administration. 4) APPLICABLE CHARGES PAYABLE TO THE RAILWAY ADMINISTRATION (Point no 9 agreement) Composition of Applicable Charges 9.1.1 The Operator Shall be responsible for payment of all applicable charges (detailed herein below) to the Railway Administration's role (access to rail network, periodic maintenance of coaches, hauling of train, etc.) in running of POW in accordance with agreement signed between the RTDC and Railway Administration (Schedule-3), BGT Policy and amendments thereof. Composition of Applicable Charges to the Railway Administration for operation of the POW under the BGT Policy and amendment thereof is given below: Rake Security Deposit Right to use charges of POW rake Fixed Haulage Charges Variable Haulage Charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at Schedule-2. 5) REVENUE SHARE TO RTDC (Point no 10.1.1 agreement) 10.1.1 In lieu of rights provided for operation of Palace of Wheels (POW), the operator has quoted the (18.5%) of Annual Gross Revenue from POW Operations (not Lesser than 10% of Annual Gross Revenue or Rs. 5.00 Crore annually, whichever is higher which is to be paid to the RTDC as Per the payment schedule given subsequently. Revenue Share quoted by the Bidder(s) shall be exclusive of GST, all applicable taxes, duties, cess, surcharges, levies etc. which shall be paid additionally by the Selected Bidder/ Operator to the RTDC. And the RTDC is paying the applicable Goods and Service tax on the said amount as supply of service under SAC 997311 Further, the Operator was obligated to make payments to the railway administration in accordance with the terms stipulated in their agreement. As per the Point no 9 agreement and the relevant portion of the agreement is re produced here in after 6) As per circular 2021 /tourism/140/03/pt.2 issued by the of the railway also charged Goods and Service tax on the following rate the details is re-produced as under: Transaction Taxability GST Rate SAC Entr No. Document to be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding/ de-boarding BGT. Since, these are in relation to the transportation services provided by Indian Railways, such user fees are incidental to haulage i.e., transportation services and hence shall qualify as composite supply with supply of haulage services being the principal supply and thus eligible to GST at the rate of 5% under forward charge. Cancellation Charges (Para 8.9) Cancellation charges are recovered by Indian Railways when there is cancellation of proposed trip. GST implications on such charges shall be treated within the same category of service against which such amounts are recovered i.e. haulage charges. Security Deposit (Para 8.10) Security Deposit when collected by supplier i.e. Indian Railways are not eligible to GST, however when such amounts are adjusted against any of the aforementioned transaction charges, then GST implications on such adjustment shall be same as that of the transaction/supply against which such charges are adjusted. 8) However, a procedural deadlock emerged when the railway administration, in adherence to its established policy, rejected direct payments from the Operator. Therefore, RTDC was required to make payment of all the applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, including agreements, invoices, and evidence of acting as a pure agent. The pivotal factor in establishing the applicability of the pure agent concept lies in the tangible influence exerted by RTDC over the financial transaction. The payment to the railway administration, collected from the Operator, was effectuated by RTDC in its role as a pure agent, thereby as per the Rule 33 of the Central Goods and Service Tax Rule 2017 RTDC did not make the payment of the Goods and Service tax neither in forward charge nor reverse charge on the said charges paid to Indian Railways. In light of these circumstances, RTDC asserts that, in accordance with the provisions of Rule 33, it acted as a pure agent, influencing and facilitating the payment to the railway administration on behalf of the Operator. Consequently, RTDC contends that it should be exempt from the obligation to make payments of Goods and Service Tax on the amount collected from the Operator, given the specific nature Of its role as a pure agent in these transactions. In adherence to their contractual obligations, the Operator, being responsible for the financial aspects of the operation, made the requisite payments t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government of Rajasthan, holding the GSTN08AAACR7643HIZ8. RTDC runs the Palace on Wheels, a luxury train in collaboration with Indian Railways. 3. The Palace on Wheels train is a part of the Scheme Bharat Gaurav Trains by the Indian Railways to run theme based train with an aim to tap the vast tourist potential of India. Under this scheme, the registered service providers are offered rakes under 'Right to Use' model by Indian Railways for operation Bharat Gaurav Trains. 4. The scheme of Bharat Gaurav Trains was launched by Indian Railways vide Circular dated 23.11.2021. Since Palace on Wheels has been run by the RTDC since 1982, RTDC was allowed by Indian Railways vide letter dated 10.05.2022, to continue with the exclusive use of existing rake of POW with payment of applicable charges under the BGT policy. 5. In the matter concerning M/S Rajasthan Tourism Development Corporation Limited has entered into an agreement with M/S Cube Constructions Engg. LTD in relation to the operation maintenance of POW dated 28.06.2023, wherein RTDC as a grantor bestowed upon the operator the exclusive right to operate, maintain and manage the POW luxury tourist train in conformity w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. 8. In the instant matter, the applicant along with his application has submitted the agreement by which RTDC has entered with M/s. Cube Constructions Engg. LTD to operate, maintain and manage the POW luxury tourist train. The applicant has also submitted the copy of the letter issued by Indian Railways to RTDC. 9. However, clause (i) of Rule 33 of CGST/RGST Rules, 2017, it is mandatory for the pure agent to get authorized by the recipient by means of a contractual agreement. The applicant has submitted in his application that RTDC has entered in an agreement with M/s. Cube Constructions Engg. LTD and in the clauses of the agreement, it is clearly written that the operator (M/s. Cube Constructions Engg. LTD) by Indian Railways for operation of POW. For the purpose of payment of applicable charges to Indian Railways, RTDC shall act as the liaison only between the operator and the Indian Railways and overall responsibility of making such payments s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Rajasthan had run the Palace on Wheels (POW) a luxury tourist train in collaboration with Indian Railways as per Agreement dated 04.10.2022 and Railway Department's circular dated 23.11.2021. 3) It has been decided by ministry of Railway to allow the RTDC to operate Bharat Gaurav Trains (POW, theme base Tourist circuit trains) in terms of Railway Board policy 2021/Tourism/140/03 dated 19/04/2022 (BGT policy) on rail network of Indian Railways solely for tourism purpose. 4) The details of key points of Agreement dated 04.10.2022 entered between Applicant and Indian Railways are as under- (a) Scope of Agreement: Subject to the provisions contained in this Agreement, the Railway Administration hereby grants to the Service Provider, throughout the duration of this agreement, a non-exclusive right to use coaches as set forth in Schedule B and require the Railway Administration to haul the Service Provider operated Bharat Gaurav Trains for carrying Tourists on the Rail Network in accordance with provisions of this agreement. (b) Rights of the Service Provider: In addition to the right to require Railway Administration to haul the Service Provider operated Bharat Gaurav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hstanding anything to the contrary contained in this Agreement, the Service Provider shall not transfer and/or assign this Agreement to any third party except if the same is done in favour of a direct/indirect subsidiary or holding company (as defined in the Companies Act 1956) or any assignment/transfer of this Agreement by the Service Provider to any Lender's Nominee for substitution of the Service Provider pursuant to a Financing Event of Default under any Financing Document through the Substitution Agreement (Transferee ), subject to such Transferee being found acceptable by the Railway Administration from a national security and public interest perspective. (f) Liability of the Railway Administration and Settlement of claims: 11.1. Transit Loss The Railway Administration shall not be liable for any loss, damage or destruction to any luggage of the Tourists travelling by the Bharat Gaurav Trains. 11.2. Settlement of Claims of Third Parties 11.2.1. Notwithstanding anything to the contrary contained in this Agreement, the Parties hereby expressly acknowledge and agree that the Railway Administration shall at any time, not be liable to any third party for any loss. Any Third P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator to have flexibility to revise the tariff to increase occupancy and generate more business for POW. d) Collect, retain and appropriate all revenues from POW operations including but not limited to the revenue from tours, food beverages Bar, Spa, laundry services, advertisement branding, souvenir sales, etc; e) Provide reception, food beverages, catering, boarding lodging, housekeeping, provision of linen, its replacement and laundry services, local sightseeing, entertainment of guests etc. of the 5-star or above category at all destinations and depute the required staff to provide these services. f) Coordination with Railway Administration for smooth running of POW and conducting tours as per Bharat Gaurav Trains (BGT) Policy and amendments thereof and other orders/ circulars issued by the Railway Administration for operation of the POW. g) Payment of POW running charges to Railway Administration which includes Right to Use (RIJ) Charges for rakes, haulage charges (fixed and variable), stabling charges; power car charges, user charges, etc h) Payment of Revenue Share to the RTDC within the stipulated timeframe as mentioned in this Agreement. i) Arranging and financing all expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Operator. A list of the items/ equipments of POW to be handed over to Operator are given in Schedule-I; Development b) Within 10 days of signing the Agreement or extended period (as decided by RTDC), RTDC shall handover the POW on 'as-is-where-is-basis' to the Operator after having a joint inspection carried out wherein a list of all movable and immovable assets including furniture, fixtures, interiors, fit outs etc shall be prepared photo/ videographed and signed by authorized representatives of both Parties; c) Liason between the Operator and Railway Administration for all relevant purposes for operation of the Palace on Wheels as per Bharat Gaurav Trains Policy and amendments thereof and any other order/ circular issued by Railway Administration for operation of the POW; d) Agree to the Operator's right to operate, maintain and manage the Palace on Wheels (POW) in accordance with the provisions of this Agreement; e) All litigations/ liabilities Involving the POW and/ or operation of the POW prior the Appointed Date and wherein action been filed against the Authority shall be conducted solely by the Authority at its own cost and expenses and the Operator shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aff Cost Per Day f) Power Car Cost Per Day Per Coach g) Stabling Charges h) Station User Fee i) Cancellation Charges j) Any other charges as defined in BGT Policy and amendments thereof and/ or charges conveyed by Indian Railways for operation of POW 9.1.3. RTDC shall inform the Operator about the Haulage and other charges as communicated by Railway Administration based on the itinerary as approved by the Railway Administration. 9.1.4. Operator (through RTDC) shall pay all applicable charges/ fee (Haulage, stabling charges, RU charges for rakes, power car cost, staff cost, etc.) within the given timeframe as communicated by Indian Railways for operation of POW. For the purpose of payment of applicable charges/ fee to Indian Railways, RTDC shall act as the liason only between the Operator and the Indian Railway and overall responsibility of making such payments shall lie to the Operator only. 9.2 Non-Payment of Applicable Charges and Consequences 9.2.1. Operator shall be solely responsible for making payment of all applicable charges/fee to Railway Administration under the BGT Policy and amendments thereof for operation of the Palace on Wheels (POW). Failure of making such payment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... + GST and other applicable taxes (Rs. 5.00 Crore/4). 10.1.6. All payments by Operator to the RTDC including Fixed Revenue Share shall be paid in form of Demand Draft (DD) ONLY issued in favour of Executive Director (Finance), RTDC Limited, payable at Jaipur. 6) The questions raised by the Applicant are as under:- Q1. Whether Goods and Service tax was required to be paid on the charges paid to the Railways on behalf of Operator and those charges were recovered from the Operator? Q2. Why not the said charges were come under the scope of the pure agent? Q3 .lf charges paid to the Railways on behalf of Operator were not come under the scope of the pure agent or liable to be tax then what will be the tax Rate? 7) With regard to first question raised by the Applicant i.e, whether GST is required to be paid on the charges paid to Railways on behalf of operator and those charges recovered from operator. In order to reach at the right conclusion let us examine the definition and legal provisions that are relevant here: Section 7. Scope of supply.- (1) For the purposes of this Act, the expression - supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied; The definition of taxable supply in term of Section 2 (108) of CGST Rule,2017 is as under- taxable supply means a supply of goods or services or both which is leviable to tax under this Act; In view of above legal provisions, we find that as per Agreement entered between Applicant and Indian Railways, the later has supplied various services to the Applicant wherein some of them are taxable and Indian Railways has not entered any Agreement with the operator at all, As the Applicant being recipient of service from the Indian Railways hence required to pay the GST on the charges paid to the Indian Railways and Applicant has sub-late this task to the operator for smooth operation Of Palace On Wheels (POW), operator is supposed to pay the charges to the Applicant and not Indian Railways along with GST as per terms and conditions Of Agreement dated 28.06.2023 entered between them (Rajasthan Tourism Development Corporation Ltd. and the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 authorization 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. 10) In the instant case, we find that the Applicant has not entered into a contractual agreement with the recipient of supply i.e. operator to act as his pure agent to incur expenditure or costs in the course of supply of services other than the service provided to the recipient of service on his own account. The Applicant does not receive any additional amount from the Operator for other than the service provided to the operator with regard to operation of POW. Since the Applicant has not procured any additional service, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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