No GST on Commission Paid to Bank's Pigmy Agents as they are Employees, Not Business Facilitators: Karnataka HC [Read Order]

In a recent ruling, the Karnataka High Court held that no Goods and Service Tax (GST) is payable on commission paid by a bank to its pigmy agents as they are employees and not business facilitators and services rendered by them fall outside the scope of taxable supply.

Karnataka Vikas Grameena Bank filed a writ petition challenging show cause notices issued by the tax department demanding GST on commission paid to pigmy agents under reverse charge.

The issue started after an inspection in June 2022, where authorities alleged that the bank did not pay GST on such commission for different years. Later, notices were issued in December 2023 stating that pigmy agents provide taxable services.

The petitioner’s counsel argued that pigmy agents are employees of the bank and not independent service providers. They submitted that the commission paid to them is in the nature of wages and that services rendered by employees to the employer are excluded from GST under Schedule III of the CGST Act.

The petitioner’s counsel further argued that pigmy agents cannot be treated as business facilitators as they are not intermediaries appointed under the RBI’s business facilitator or business correspondent models.

On the other hand, the State argued that pigmy agents are paid commission and act as agents providing services to the bank. The counsel contended that they fall within the category of business facilitators and that GST is payable on such services under the reverse charge mechanism.

Justice M. Nagaprasanna observed that the real relation between bank and pigmy agents must be seen. The court saw that the bank has control over the work of the pigmy agents and that they follow bank instructions and deposit collections regularly.

The court explained that even though payment is called commission, it is like wages and shows employer-employee relationship. It also observed that services by employees are not supply under GST and cannot be taxed.

The court further observed that pigmy agents cannot be treated as business facilitators and the department assumption was wrong. The court held that GST is not applicable and the show cause notices are invalid. All notices were quashed and the writ petition was allowed.

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