The Karnataka Authority of Advance Ruling ( AAR ) has held that GST applicable to reimbursement received towards stipend paid to trainees on behalf of Industry partner as part of training agreement.
The applicant, TeamLease Educational Foundation, an approved National Employability Enhancement Mission (NEEM) facilitator partner with various trainers and Employers/Company/Industry (industry partner) for imparting training to NEEM trainees. The objective of National Employability Enhancement Mission (NEEM) is to offer on the job practical training to enhance employability of a person either pursuing his or her Post-Graduate / Graduate / Diploma in any chnical or non-technical stream or has discontinued studies after class 10. to enhance his / her employability.
The applicant as well as the Industry partner have certain obligations as per the NEEM Regulations and thus to fulfill the obligations, the applicant charges Administration Fee, Sourcing Fee, Enrollment Fee, Reimbursement of monthly stipend paid to trainees on behalf of Industry partner and Reimbursement of cost of medical and accident insurance obtained for welfare of trainees as agreed by the Industry Partner.
The applicant, though collecting GST on the entire transaction value including the reimbursement amounts, is of the view that the reimbursement received towards stipend 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. Thus the applicant sought advance ruling in respect.
Before examining whether reimbursement is chargeable to GST or not AAR examine whether the applicant qualify to be a pure agent of the Industry Partner or not. As per rule 33 of the CGST Rules 2017 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. The applicant is raising invoice for stipend 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 said amounts later. Thus the applicant does not qualify to be a pure agent at all, in terms of rule 33 of the CGST Rules 2017.
It was observed by AAR that the applicant has furnished a copy of agreement entered with one of the Industry partner i.e. LG Electronics India Pvt. Ltd., clearly specifies that “the Industry partner shall deposit the amount towards the stipend to the trainees on or before 2nd day of each calendar month”, from which it is clearly evident that the applicant is not incurring the said amount initially and latter claiming the said amount by raising an invoice. Further the applicant also has not furnished any documentary evidence wherein the Industry Partner has authorised the applicant to make the payment to third party and later to claim the actual amounts. Thus even on this account also the applicant is not fulfilling the required condition.
Further AAR observed that the Course Registration Letter addressed to trainees furnished by the applicant 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 month and distribute/ disburse 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 and later claiming the reimbursement but receives the said amount and disburses the same and hence the applicant is no fulfilling the required condition.
The Coram of Sri Dr. M. P. Ravi Prasad, Member (State) and Sri. T. Kiran Reddy, Member (Central) based on the above observations held that “the applicant does not qualify to be pure agent of 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”.
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