Payments for Supplies received shall disentitle the party to be a ‘Pure Agent’: AAR [Read Order]

The Mumbai Bench of Authority of Advance Ruling in an application filed by Maansmarine Cargo International LLP held that the applicant is an intermediary and not a pure agent.

The applicant is engaged in management consultancy services to ship owners, logistics services through water, etc. in Mumbai. The applicant proposes to enter into an outsourcing agreement to provide backend services in respect of foreign business carried out by MSS Marine Ltd. in Hong Kong. The applicant shall be charging management fees for the work and all other expenses incurred shall be reimbursed on actual basis. All the payments would be received in foreign exchange

The issue before the Bench is the determination of whether GST shall be applicable on

1. the reimbursement of expenses such as salaries, rent, office expenses, travelling cost, etc.; and
2. management fees charged by the applicant to the company for managing the outsourced job

For the initial issue, the applicant submits that the reimbursement of certain expenditure like the salary of employees, rent of their office, etc. to be provided by the applicant’s client are received by them in the capacity of a pure agent and hence is not taxable.

The Bench constituting of members Shri. B. Timothy and Shri. B.V. Borhade held that the applicant is not acting in the capacity of a pure agent. The bench reasoned that the applicant is making payments to the vendors for supply received by them and not for the services received by the third party. Further, the reimbursement shall pertain to establishment costs and shall be used for running their office in India. The provisions of valuation under GST shall hence include all the costs, including the employee cost.

For the second issue, the Bench held that the services provided by the applicant are in the nature of an ‘intermediary’ since for instance in the transaction where the applicant’s personnel travel to various countries to meet with port agents, shippers to discuss operational efficiency, they would actually be facilitating the supply of services on behalf of their client and not on their own account.