GST UPDATE No 213 ON TAXABILITY OF REIMBURSEMENT OF STIPEND TO TRAINEES

The dispute as regards taxability of reimbursement of expenses has its roots from erstwhile service tax regime. There are numerous services which involve incurring of expenditure by the service provider and claiming reimbursement from the service recipient as the ultimate burden of such charges is to be borne by the service recipient. Recently, similar issue regarding taxability of reimbursement of stipend paid to the trainees was raised before Maharashtra AAR in the case of M/S PATLE EDUSKILLS FOUNDATION. The outcome of this decision is the subject matter of discussion of our present GST update.

The applicant is engaged in the business of Human Resource & Skill Development and is a facilitator under the National Employability Enhancement Mission (NEEM Scheme) of the Government of India. The applicant is responsible to enroll NEEM trainees and provide them with on job practical training through various Institutes, Factories, Hospitals, College, Trusts etc. to enhance the prospects of their employability. As per the agreement, applicant identifies and provides to Trainer Institutes, relevant trainees who can work at the said organizations and obtain “on job practical training” so as to enhance their chances of employability and for which, the applicant charges a fixed fee of Rs. 1500/- per trainee per month from such Institutes on which GST is levied and paid. Further, in terms of the agreement, the trainer institutes are also required to pay monthly stipend to the trainees for the duration of their training. The method of paying stipend is fixed in a manner where the Trainer Institutes pay the stipend amount to the applicant who in turn reimburses it to the trainees. The applicant is charging GST only on the amount of service charges charged to the Trainer Institutes and not on the stipend amount collected from such Institutes.

The applicant contended that the stipend amount is being collected by them in the capacity of a pure agent without any profit element so the same should be excluded from the taxable value of its service. Reliance was placed on various judicial pronouncements

such as DRS Marine Services Pvt. Ltd. [2019 (20) GSTL 471 (AAR-GST)], Arivu Educational Consultants Pvt. Ltd. [2020 (32) GSTL 353 (AAR-GST KAR.)], Asiatic Clinical Research Pvt. Ltd. [2020 (33) GSTL 42 (AAR-GST KAR.) and Cadmaxx Solutions Education Trust [2020 (32) GSTL 49 (AAR-GST-KAR)]. Moreover, as per the agreement between the applicant and trainer institute, the legal liability to pay stipend to the trainees is cast on the trainer institute and the applicant only acts as the medium of payment/remittance of stipend to the trainees. Hence, such stipend would not fall under section 15(2)(b) of the CGST Act, 2017 and should not be included in the taxable value.

The AAR accepted the submissions of the applicant and held that the amount of stipend received by the applicant from the entities/training institutes and then disbursing the same to the trainees in full without making any deductions from the stipend is to be treated as covered by the concept of ‘pure agent’ so not required to be added to the taxable value. Reliance was placed on the decision given by the same AAR in the case of M/s Yashaswi Academy for skills wherein it was held that the reimbursement by industry partner to the applicant of the stipend paid to the trainees does not attract tax under the GST Act.

The concept of expenses incurred as pure agent comes into picture in number of services such as payment of toll charges in case of hiring of motor vehicles, travelling expenses of consultant, reimbursement of ESI/PF in case of supply of manpower services etc. The charges paid to third party by the service provider during the course of providing the service and claiming reimbursement of the same from the service recipient on actual basis is not to be included in the taxable value of service. It is pertinent to mention here that similar controversy prevailed in the erstwhile service tax regime wherein Rule 5 of the Service Tax Determination of Rules, 2006 providing for inclusion of any reimbursement expenditure or cost incurred by service provider in the course of providing taxable service was declared as ultra vires by the Supreme Court in the case of UNION OF INDIA VERSUS INTERCONTINENTAL CONSULTANTS AND TECHNOCRAFTS PVT. LTD. However, the government resorted to amendment in Budget 2015 wherein reimbursable expenditure was made includible in the value of taxable service for the purpose of levy of service tax. It is appreciable that the decision of the Advance Ruling is rendered in favour of the taxpayer.

Comments

GST UPDATE No 213 ON TAXABILITY OF REIMBURSEMENT OF STIPEND TO TRAINEES

Post a Comment

Query