The Uttarakhand Authority of Advance Ruling (AAR) in the case of M/s. Dry Blend Foods Pvt. Ltd. vide Order No. Advance Ruling 01/2022-23 dated 01.04.2022, has ruled that GST is not payable on the basis of the reverse charge mechanism (RCM) on the commission paid to the Overseas Commission Agent.

The applicant is a manufacturer and carries on the business of supplying seasonings, spices, premixes and similar food products to its customers located within and outside India. The applicant approached the foreign customers in order to supply (export) its goods to customers located outside India. The third party intermediaries assist the applicant in exporting the goods manufactured by them to the prospective buyers who are located outside India. 

The applicant has sought an advance ruling on the issue of whether an Overseas Commission Agent is covered within the definition of the term ‘intermediary’ as provided under section 2(13) of the IGST Act, 2017.

Yet another issue raised was whether services received by applicants from the Overseas Commission Agent fall within the meaning of the term “import of services” as provided under section 2 (11) of the IGST Act, 2017. Whether the applicant is required to pay GST on an RCM basis under section 5(3) of the IGST Act, 2017 on commission paid to the Overseas Commission Agent. 

The AAR observed that any person who enables the supply of goods or services between two people is considered an intermediary. As per the agreement to arrange or facilitate the supply of goods by the applicant to the international market, he shall get the commission on agreed terms. An overseas commission agent falls within the definition of “intermediary” as provided under section (2)13 of the IGST Act, 2017.

The term “import of services” means the supply of any services where the supplier of services is located outside India, the recipient of services is located in India, and the place of supply of services is in India.

The AAR noted that the condition “import of services” in respect of the place of supply of services in India is not satisfied. The place of supply of the intermediary services would be the location of the supplier of such services, i.e., the location of the intermediary service provider. Thus, the condition is not satisfied as the place of supply of service is not in India.

“We find that the import of services shall be treated as an inter-state supply of services and the same is chargeable to IGST under reverse charge, i.e., a service recipient located within Indian territory has to pay the tax. Since the transaction is related to an intermediary service which is out of the ambit of ‘import of services’, accordingly we observe that GST under reverse charge is not payable on the same,” the AAR ruled.