Overseas commission Agent | Not chargeable to GST under RCM

Overseas commission Agent | Not chargeable to GST under RCM

In the matter of M/s. Midas Foods (P.) Ltd. [Application No. 05 of 2020-21 dated October 15, 2020]. The applicant (M/s Midas Foods (P.) Ltd. Seeks the advance ruling about the applicability of GST under RCM on Overseas Commission Agent (OCA) appointed to get confirmed order from outside India

Hon’ble AAR held that as per Section 2(13) of IGST Act, 2019, OCA is covered within the ambit of “Intermediary” as he is facilitating supply of goods. Further, as per Section 13(8)(b) of IGST Act, the place of supply of intermediary service is “Location of Supplier of Service”. Therefore, service provided by OCA to the applicant is not covered under “Import of Service” because the place of supply falls outside India. Therefore, on Service provided by intermediary, GST is not payable under Reverse Charge Mechansim.

In this article we will explain briefs about applicant’s questions, legal provisions on this matter and final ruling of UAAR.

1. Brief Facts of the case

  • The Applicant (M/s. Midas Foods (P.) Ltd.) is engaged in a business of supplying seasoning, spices, premixes and similar food products within India as well as outside India.
  • For supplies outside India, the applicant sometimes enters into an agreement with some persons outside India and such persons help in finding customers for the applicant outside India. 
  • Commission is paid to such person @ 10-15% of the FOB value of the goods exported outside India.
  • Scope of work of such specified person includes following:
    • To fetch customers for goods of the Applicant.
    • The applicant received PO (Purchase order) from the customers outside India.
    • The Applicant issues tax Invoice under his own name and exports goods on the basis of PO.
    • Consideration for the exported goods is transferred to the Bank Account of the applicant by specified person.
    • The specified person raises his monthly commission invoice on the applicant as a fixed percentage of supplies.
    • And finally, the applicant makes payment of the commission to the specified person.
  • The applicant has entered into an agreement with an OCA (Overseas Commission Agent) who is located outside India in UAE. 
  • Appointed OCA has enough experience of providing intermediary service in internal Market. He will represent the applicant in foreign market (UAE) for which he has to pay a commission ranging from 10-15% on FOB (Free on Board) value of the consignment exported.

2. Questions before Hon’ble Advance Ruling Authority

The Applicant filed an application before the Advance Ruling Authority seeking assistance an advance ruling on following questions:

  1. Whether Overseas Commission Agent is covered within the definition of the term ‘intermediary’ as provided under section 2(13) of the IGST Act, 2017;
  2. Whether services received by applicant from the Overseas Agent falls within the meaning of the term ‘import of services’ as provided under section 2(11) of the IGST Act, 2017;
  3. Whether the applicant is required to pay GST on RCM basis under section 5(3) of the IGST Act, 2017 on commission paid to the Overseas Commission Agent.

3. Analysis of Legal Provisions by Hon’ble AAR

3.1 Question 1: Whether Overseas Commission Agent is covered within the definition of the term ‘intermediary’ as provided under section 2(13) of the IGST Act, 2017

3.1.1 Legal Extracts

  • Section 2(13) of IGST Act, 2017 is reiterated below for ready reference:

“(13) “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”

3.1.2 Analysis and discussion by AAR

  • As per agreement, OCA is engaged in providing intermediary service in the international market and the applicant wants to utilise his expertise to get purchase orders.
  • For such service, OCA will be paid commission @ 10-15% on FOB value of consignment.
  • Invoice for exported goods are raised in the name of foreign buyer and not in the name of OCA. Commission is paid to the OCA as per agreed terms.
  • As per Section 2(13) of IGST Act, 2017, any person who facilitates supply of goods or services between two parties is considered as intermediary. However, if such person provides goods or services on his own account then he can’t be termed as intermediary.
  • As per agreement, in the given case, OCA facilitates supply of goods of the applicant in the international market and gets commission as per agreed terms.
  • Therefore, OCA falls within the definition of “Intermediary” under section 2(13) of IGST Act, 2017.

3.2 Question 2: Whether services received by applicant from the Overseas Agent falls within the meaning of the term ‘import of services’ as provided under section 2(11) of the IGST Act, 2017

3.2.1 Legal Extracts

  • Definition of “Import of Services” is given in Section 2(11) of IGST Act, 2017, which is reiterated below for ready reference:

“(11) ‘‘import of services” means the supply of any service, where––

(i) the supplier of service is located outside India;

(ii) the recipient of service is located in India; and

(iii)  the place of supply of service is in India.”

  • Provisions to determine place of Supply of intermediary service are given under section 13(8)(b) of IGST Act, 2017, which are reiterated below for ready reference:

“(8) The place of supply of the following services shall be the location of the supplier of services, namely: ––

(b) intermediary services.”

3.2.2 Analysis and discussion by AAR

  • As per Section 2(11) of IGST Act, 2017, a service can be called as “Import of Service” only if following 3 conditions are satisfied:
    • The Supplier of service is located outside India
    • The recipient of service is located in India.
    • Place of supply for such service falls in India.
  • In the given case, following 2 conditions are apparently satisfied:
    • supplier of service, i.e., OCA, is located outside India.
    • Recipient of the service, i.e., the applicant, is located in India.
  • For the purpose of determining the place of supply of intermediary service, reference should be given to section 13(8)(b) of IGST Act, 2017.
  • As per Section 13(8)(b), Place of supply of intermediary service is “Location of Supplier of Service”, i.e., location of intermediary service provider.
  • Therefore, 3rd condition of Section 2(11) is not satisfied.
  • Accordingly, In the given case, the intermediary service received by the applicant is not covered under “import of services” because the condition 3 is not fulfilled.

3.3 Question 3: Whether the applicant is required to pay GST on RCM basis under section 5(3) of the IGST Act, 2017 on commission paid to the Overseas Commission Agent.

3.3.1 Legal Extracts

  • As per Section 5(3) of IGST Act, 2017, GST on import of service is to be paid by the recipient of service under Reverse Charge Mechanism. Relevant extract of Section 5(3) is reiterated below:

“(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

  • As per Section 7(4) of IGST Act, 2017 is reiterated below:

“7 Inter-State Supply

..

(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.”

3.3.2 Analysis and discussion by AAR

  • As per Section 5(3) of IGST Act, on government notified goods and service, GST shall be paid by the recipient of goods or service under Reverse Charge and all provisions of GST law shall apply on the recipient.
  • Further as per section 7(4) of IGST Act, 2017, the supply of services imported into the territory of India shall be treated as supply of services in course of inter-state supply. 
  • Hence, the ‘import of services’ shall be treated as Inter state supply of services and will be chargeable to IGST under Reverse Charge Mechanism (RCM). 
  • However, as per discussion above in question no. 2, transaction under discussion is not qualified as ‘import of services’. 
  • Therefore, such transaction is not liable to IGST under RCM.

4. Decision by Hon’ble Authority of Advance Ruling

On the basis of discussion and finding above the Hon’ble Uttarakhand Authority for Advance Rulings held as under:

  1. Overseas Commission Agent is covered within the definition of the term intermediary’ as provided under section 2(13) of the IGST Act, 2017;
  2. Services received by applicant from the Overseas Commission Agent do not cover within the meaning of the term ‘import of services’ as provided under section 2(11) of the IGST Act, 2017;
  3. The applicant is not required to pay GST on RCM basis under section 5(3) of the IGST Act, 2017 on commission paid to the “Overseas Commission Agent”.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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