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RCM on Legal fee

CA OM PRAKASH GUPTA (CA Practice ) (76 Points)

05 November 2019

Bill of legal consultancy received as under: consultancy Fee xxx. Out of pocket exp. yyy -. ------- Total. zzz. *Query* : Whether RCM deposited on xxx amount or zzz amount.

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8 Replies

Surjeet Negi (947 Points)
Replied 05 November 2019

You can refer Rule 33 of the CGST Rules. It says that the expenditure or costs incurred by the supplier as a pure agent of the recipient of supply shall be excluded from the value of the supply provided the conditions mentioned in Rule 33 are fulfilled.

Therefore, GST shall be applicable only on the notional reimbursement and not on actual reimbursement.

PHANEENDRA MALLA (CA Practice) (93 Points)
Replied 05 November 2019

Yes.

As Mr.Surjeet Negi said, if such expenses are satisfying Pure agent definition, GST will not be applicable on that amount and RCM need not be paid.

If it not, RCM needs to be paid on that amount also.

CA OM PRAKASH GUPTA (CA Practice ) (76 Points)
Replied 05 November 2019

Very difficult to establish the pure agent.

Surjeet Negi (947 Points)
Replied 05 November 2019

Then you have to pay gst on total amount.

Pankaj Rawat (GST Practitioner) (55030 Points)
Replied 05 November 2019

Why it is difficult to determine the expense incurred as Pure Agent........
In term of explanation to rule 33
There are 4 Condition to be satisfied for Pure Agent :
1. Contractual agreement with Recepient of supply to act as pure agent to incur expenditure .
2. Neither intends to hold nor hold any title to services
3. Does use for its own Interest
4. Received the actual amount incurred.

The relevant thing to note that pure agent does not use goods or services so procure for the provision of his services or his own interests & this fact has to determine from the terms of contract.

Now if you still finding it difficult to distinguish then kindly clarify the expense incurred by supplier .... I would help you on the same

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Pankaj Rawat (GST Practitioner) (55030 Points)
Replied 05 November 2019

** in point 3 "Does NOT use for his own interest

Hardik (Professional) (918 Points)
Replied 06 November 2019

Answer - RCM to be applied on total value zzz.

Reasoning - Here the legal consultant is not acting as an agent of the recipient of services. He is claiming out of pocket expenses in order to enable him to effectively perform the service on his own account. I personally think that such expenses are incidental to the main supply and the application of Pure agent concept is not logical.. (your views may still differ..)

Such expenses are part of his service, they're incidental to the supply of services and should be included in the valuation of supply because it doesn't satisfy the 3rd condition of Rule 33 i.e. Out of pocket expenses are not in addition to the services which he is providing. It is simply a part of services that he is performing on his own account..

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