The different dimensions of application of GST Provisions on transportation services provided by a Pure Agent:
The below approach has to be taken in the sequential form:
1. Check whether the person/entity qualifies as a Pure Agent?
Explanation :
As per Rule 33 of CGST Rules, 2017, a Pure Agent means,
A person who enters into a contractual agreement with the recipient of supply (to whom the Pure Agent is providing it's agency services) to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both (eg. expenses being in the form of loading or unloading of goods at the port, or payment to third party with whom the recipient of Pure Agency services is dealing with, the pure agent pays such charges on behalf of the recipient and later recovers the same by way of reimbursement without adding any profit margin).
Neither intends to hold or holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply. (this point will later have direct nexus with whether the Pure Agent qualifies for GTA to determine transportation as a separate supply or composite supply and determination of rate of GST Applicable which depends on whether a consignment note is being issued or not).
Does not use for his own interest such goods or services so procured as pure agent.
Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. (the Pure Agent charges the recipient of his services for agency services & for reimbursement of payments made on his behalf, in separate invoices).
Illustrative example:
If A (situated in Delhi) is procuring material from B (situated in Assam) and A has appointed C a provider of agency services then C shall pay B for the goods on behalf of A and then claim reimbursement in a separate invoice from A without adding any profit margin along with an invoice for Agency Services which included transportation. In this way GST shall be applicable for services provided by C to A only on Agency Commission and not on reimbursement claimed from A.
Answer: If a person satisfies the above conditions then he is a Pure Agent. In such case transportation services provided by the Pure Agent shall not be exempt (which otherwise shall be exempt since road transportation services are covered by exemption notification no. 12/2017 or 9/2017 dated 28.06.2017) since they will be treated as ancillary services in relation to Principal supply of Agency Services and by virtue of Section 8 of CGST Act, 2017 shall be a composite supply taxable at the rate of principal supply.
1a. However interestingly, where a Pure Agent issues a consignment note then as per definition for GTA provided in the aforesaid notifications, Pure Agent shall be construed as a person engaged in GTA Services and in such case transportation services shall be taxable at the rate of 5% or 12% (if input tax credit is being taken), as the case may be.
Therefore in both the cases, (whether a consignment note is issued or not) transportation services provided by a Pure Agent shall be taxable (either because of being a composite supply or a GTA supply).
Transportation services can only be exempt if it a principle supply provided by any person who doesn't qualify to be a GTA i.e not issuing a consignment note.
2. Person who is not a Pure Agent?
If a person does not satisfy the aforementioned conditions then he is not a Pure Agent and GST shall be applicable on expenses incurred on behalf of A & on Agency Services which includes transportation.
2a. In such case if Principle supply is agency services and not transportation services, then GST shall be payable
i) on Agency Services plus transportation services (being a composite supply) at the rate applicable on Agency Services and
ii) on goods/services for which payment has been made by the agent on behalf of the recipient at the rate applicable on such good & services (being treated as a separate supply by agent to the recipient)
2b. If principle supply, in this case, is only of Transportation services i.e the person is not an agent but only a transporter then transportation services shall be exempt as per aforesaid mentioned notification provided a consignment note is not issued otherwise such services will be GTA Services and GST shall be applicable at 5% or 12%, as the case may be.
Kindly share among your friends and colleagues for further clarification which is highly required in the industry or for any counters that are most welcome.
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