RCM on Commission Paid to Overseas Agent

To boost the sales and to remain in the competitive market the company usually avails the services of agents who help the company to find the new customers and charge commission in lieu of the consideration. Similarly to boost the export the company takes the services of overseas agent who approach foreign customers and helps the company find customers located outside India and the company pays the sales commission to said overseas agents. From the GST prospective, the main question that comes into consideration is that whether the company is liable to pay tax under RCM for availment of services from agent located outside India. Let’s discuss this issue in detail.

As we know that Notification No. 13/2017-Central Tax (Rate) & Notification No. 10/2017-Integrated Tax (Rate) contains the list of services which are subjected to RCM.  The serial number 1 of Notification No. 10/2017 IT(R) states that RCM would be applicable in the following case;

Thus from the above it is clear that the RCM would be applicable on any service provided by the person located outside India to any person located in India. In other words, the RCM would be applicable on the import of any service by a person located in India from a person located outside India.

Now it is important to know “what constitutes import of service”. The term import of service is defined in sub section 11 of section 2 of IGST Act 2017. The said definition is as follows;
“(11) Import of services means the supply of any service, where
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India”

Hence to qualify a service as import of services the supplier should be outside India & recipient should be in India and the place of supply should also be in India.

For applicability of RCM in respect of transaction entered between the company and overseas agent the deciding factor is whether such service of overseas agent would be considered as import of service or not, since as per serial number  1 of Notification No. 10/2017 IT (R) the RCM would applicable on import of service. As we know that in said transaction the supplier of service is overseas agent (who is located outside India) and the recipient of service is the company located in India. Hence first two conditions of the import of service are satisfied and for the third condition regarding place of supply, we have to go through the provisions of place of supply in this respect.

The provisions relating to place of supply are contained in section 10 to section 13 of IGST Act 2017. Under section 10 & 11 of IGST Act the provisions relating to place of supply of goods are given. Section 12 of IGST contains the provisions of place of supply of services where both the supplier and recipient are in India. However, if either supplier or recipient is located outside India, then there is a section 13 of IGST to determine the place of supply.

Accordingly, to determine the place of supply of service received from overseas agent we have to move for section 13 of IGST. Under Sub-section 8 of section 13 of IGST Act 2017 it is stated that;

“(8) The place of supply of the following services shall be the location of the supplier of services, namely:
(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;

(b) intermediary services;

(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month”.

From the above it is clear that as per section 13(8) of IGST Act 2017, the place of supply of intermediary service would be the location of service provider i.e., overseas agent which is outside India. Hence the services availed by the company located in India from the overseas agent located outside India would not be covered under the definition of import of services. As the said services are not considered as import of services, hence it would not be covered under serial number 1 of Notification No 13/2017 CT (R). Accordingly, there is no need to deposit RCM on the said services.

In respect of the same question there is the Judgement of  Uttarakhand Authority for Advance Ruling in the case of M/s Dry Blend Foods Pvt Ltd. [2022(04)LCX0181(AAR)]. The brief facts of the said case are as follows;

Facts of the case: The applicant (M/s Dry Blend Foods Pvt Ltd) is a manufacturer and carries on the business of supply of inter-alia seasonings, spices, premixes and similar food products to its customers. In order to supply (export) its goods to customers located outside India, they approach third party intermediaries or business facilitators whose job is to search and find customers located outside India and thereafter, the intermediaries connect them with the applicant. After finalizing the terms and condition related to export of goods, payments etc. with the customers located outside India the Third party intermediaries assist the applicant to export the goods manufactured by them to the prospective buyers who are located outside India. For that the applicant shall pay commission to overseas agent as per the terms and condition of the MOU.

The advance ruling authority held that the overseas commission agent is covered within the definition of the term "intermediary" as provided under section 2(13) of the IGST Act 2017 and services received by the applicant from the overseas commission agent do not fall within the meaning of the term 'import of services as provided under section 2(11) of the IGST Act, 2017 and the applicant is not required to pay GST on RCM basis on commission paid to the overseas commission agent.

Thus, from the above detailed discussion. We can reach to the following conclusion;

Conclusion: The services availed by Indian company from overseas agent for providing export orders would not be covered under the definition of import of service and accordingly, the RCM would not be applicable on such services.

Disclaimer:  The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.