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TMI Blog2022 (7) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ngala, Bengaluru, 560095 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 07/2022 dated 8th March 2022. Brief Facts of the case: 3. The Appellant is an approved NEEM (National Employability Enhancement Mission) Facilitator under the All India Council for Technical Education (NEEM) Regulations, 2017. The objective of NEEM is to offer on the job practical training to enhance employability of a person pursuing Post-Graduate/Graduate/Diploma in any technical or non-technical stream or a person who has discontinued studies after class 10. As per NEEM Regulations, a person registered for receiving training is called a Trainee. A contract is required to be executed between NEEM Facilitator and NEEM Trainee; the contract is neither an offer f employment nor a guarantee of employment. The Trainees are entitled for payment of remuneration/stipend under the NEEM Regulations which shall be at par with the prescribed minimum wages for unskilled category. Such remuneration/stipend shall be paid as a single consolidated amount without any statutory deductions applicable to regular employees viz. PF/ESI, etc since the NEEM contract assures training and does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trainees on behalf of the industry partner, the Appellant has filed this appeal on the following grounds. 6.1. A reading of Rule 33 of the CGST Rules makes it clear that any cost or expenditure incurred by the supplier on behalf of the recipient of service shall be excluded from the value of supply under Section 15 of the CGST Act, if the conditions prescribed under Rule 33 are satisfied. In the present case, the impugned order has misconstrued the provisions of Rule 33 to add a restriction that expenditure must be incurred first and only claimed later, to qualify as a pure agent. The Appellant submitted that the first condition under Rule 33 that, the supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorisation by such recipient has been complied with. The agreement between the industry partner and the Appellant is the authorisation required under this condition, which is supported by the NEEM regulations. Clause 3 of the agreement lays down that for the dedicated employment of the trainees with the industry partner, the industry partner pays the Appellant a monthly stipend in a bank account, to be utilized by the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner and the industry partner is liable to make the payment of consideration; that the Appellant is providing services as per NEEM regulations and does not retain any portion of the stipend or receive any separate consideration from Trainees; that it is merely acting as an intermediary of the industry partner; that the Appellant is recovering actual amount of stipend paid to trainees from industry partner and separately charging fee for administration, sourcing and enrolment towards the services provided on its own account, on which GST is charged. Therefore, it is clear that the reimbursement received from the industry towards the stipend paid to trainees is in the nature of pure agent services provided by the Appellant as per Rule 33 and therefore such reimbursement should not form part of taxable value. 6.4. The Appellant submitted that in the Appellant's own case, on the same facts and on the same question posed before the Gujarat AAR which was reported in 2022(3) TMI 1088-Authority of Advance Ruling, Gujarat, the Appellant has received an order holding that the Appellant is pure agent of industry partner to the extent of reimbursement of the actual amount of stipend i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims reimbursement of monthly stipend paid to the trainees and reimbursement of cost of medical and accident insurance obtained for welfare of trainees. The Advocate submitted that the reimbursement received towards stipend is an expenditure incurred as a pure agent of the industry partner as per Rule 33 of the CGST Rules; that the Appellant is merely a conduit for the payment of stipend and the actual service is supplied by the trainees to the industry partner and such reimbursement of stipend should be excluded from the taxable value for payment of GST; that the AAR has misconstrued the provisions of Rule 33 and added a restriction that expenditure must be incurred first and reimbursement claimed later in order to qualify as pure agent; that this condition is not stipulated under law and hence the ruling of the AAR deserves to be set aside. 7.2. A query was posed by the Bench by drawing attention to the NEEM Regulations wherein a responsibility is cast on the NEEM Facilitator (Appellant) to issue a training completion certificate to the trainees and also that penal consequences get attracted if the NEEM Facilitator fails to comply with the provisions of the NEEM Regulations. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cadmaxx Solutions Education Trust where on the same set of facts relating to NEEM Facilitator it was held that reimbursement of stipend is not chargeable to GST. The Advocated prayed that their appeal be allowed since they meet all the requirements of a 'pure agent' as laid down in Rule 33 of CGST Rules. DISCUSSIONS AND FINDINGS 8. We have gone through the entire case records and considered the submissions made by the Appellant in their grounds of appeal, as well as the submissions made at the time of personal hearing. The limited issue for determination is whether the Appellant is acting as a 'pure agent' of the industry partner to the extent of reimbursement received towards stipend paid to trainees as part of the training agreement. 9. Briefly stated, the Appellant being in the business of training, is an approved NEEM (National Employability Enhancement Mission) Facilitator under the All India Council for Technical Education NEEM Regulations, 2017. The Appellant has entered into a contract with a trainee whereby the Appellant, as NEEM Facilitator, will formulate a 'Training Program' for the training of the NEEM Trainee and shall make suitable arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner and hence the Appellant does not qualify to be a pure agent. 11. In their appeal before us, the Appellant has contended that the reimbursement received towards stipend is an expenditure incurred as a pure agent of the industry partner as per Rule 33 of the CGST Rules; that the Appellant is merely a conduit for the payment of stipend and the actual service is supplied by the trainees to the industry partner and such reimbursement of stipend should be excluded from the taxable value for payment of GST; that the AAR has misconstrued the provisions of Rule 33 and added a restriction that expenditure must be incurred first and reimbursement claimed later in order to qualify as pure agent; that this condition is not stipulated under law. Before we analyze whether the Appellant fulfills the provisions of Rule 33, we would like to refer to the NEEM Regulations under which the Appellant operates. The All India Council for Technical Education (AICTE) notified the National Employability Enhancement Mission (NEEM) Regulations, 2017 on 15th June 2017. The relevant clauses of the NEEM Regulations are reproduced hereunder for ease of reference:- 4.0 ELIGIBILITY OF A TRAINEE UNDER NEEM 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the contract by giving a written notice 30 days in advance to the NEEM Facilitator. 7.5 The selection of a NEEM trainee does not constitute an employment contract with NEEM Facilitator or the company/Industry where the NEEM trainee is placed for training under the contract. 9.0 PRACTICAL AND BASIC TRAINING OF NEEM TRAINEES 9.1 Each NEEM trainee shall be provided comprehensive training in the trade by deployment in the premises of an employer/company/industry or in field operations depending on the trade selected. 9.2 On the job training may be complemented by access to the cloud, satellite or such other facilities that NEEM Facilitator deems as appropriate for the training. 9.3 NEEM trainees who undergo training in the NEEM project would be required to undergo related instruction and course curriculum devised under NSQF or as approved by National Skill Qualifications Committee (NSQC). 9.4 NEEM Facilitator will partner with various trainers and Employers/Company/Industry for the completion of training of NEEM trainees. 10.0 HEALTH AND SAFETY AND WELFARE OF TRAINEES 10.1 NEEM Facilitator shall comply with the necessary provisions and the applicable Acts, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Registration. The performance of the NEEM Facilitator will be reviewed every three years or at any time during the three year period as may be decided by the Council by the duly constituted committee for the purpose of extension of Registration or otherwise. This Clause would operate retrospective to all Facilitators. 12. A reading of the above NEEM Regulations makes it evident that the Appellant as a NEEM Facilitator is bound by the following responsibilities:- * Motivate youth to join the NEEM Scheme as a Trainee * Partner with various trainers and employers/company/industry for providing on-the-job training to the NEEM trainees * Deploy the trainee in a suitable industry for the purpose of getting a comprehensive on-the-job training * Pay a consolidated amount (without any statutory deductions) by way of remuneration /stipend to the NEEM trainee which shall be at par with the prescribed minimum wages for unskilled labour * Be responsible for the conduct and discipline of the NEEM trainee during the period of deployment for training, as per the rules and regulations of the industry where the NEEM trainee is placed for training * Monitor the daily and weekly working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth which is the consideration for assisting the Company with the administrative tasks for deployment of trainees to the Company for training. * Pay the Appellant a one-time sourcing fee of Rs 1000/- per candidate for sourcing the candidates. * Implement Digital Workforce Solution (DWS) for attendance and leave management. * Pay the Appellant Rs 500/- to enable the Appellant to enroll the trainees in various courses like Bachelor of Management Studies, etc. * Pay the Appellant the cost of medical and accident insurance provided to the trainees. * Shall convene periodic meetings with the Appellant to discuss issues concerning areas for improving the training * Shall not initiate disciplinary proceedings against any trainee without intimation to the Appellant * Shall notify the Appellant in writing if it is desirous of offering employment to any trainee during or after th completion of the training * Upon completion of the training, the Company shall inform the Appellant so that the Training Completion Certificate can be given by the Appellant. 14. In the context of the Appellant's role as a NEEM Facilitator and their agreement with the industry partner, let us e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recipient and claims reimbursement, at actuals, for such supplies from the recipient of the main supply. In other words, under the pure agent concept, the expenditure which is incurred by the supplier of service for procuring supplies from a third party for the recipient, in addition to his own supplies, is excluded from his value of supply since such expenditure is one which is compulsorily levied on the recipient of service, but has been paid by the supplier of service to the third party on behalf of the recipient and is claimed as a reimbursement from the recipient at actuals. The Appellant's contention is that the Company, who is the recipient of service, has authorized them to procure the services of a third party i.e the trainees and has authorized the Appellant to make the payment of stipend to the third party on the Company's behalf as a consideration for the supply of service rendered by the third party. The appellant has also argued that the payment of stipend to the trainees which is done on behalf of the Company as its pure agent, is in addition to the services supplied by them on their own account for which consideration is in the form of administration cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to pay stipends to Trainees in line with the applicable minimum wages payable for unskilled category under the Factories Act. "This clearly evidences that it is the Appellant who is obligated to pay the stipend to the trainees. We therefore, find that the Appellant fails to satisfy condition (i) of Rule 33. 17. We also find that Appellant fails to satisfy the 3rd condition of Rule 33 i.e 'the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account." We find from the agreement with the industry partner that, other than deployment of trainees as per the NEEM Regulations, no other service is supplied by the Appellant. All the charges billed by the Appellant on the Company are only in connection with the supply of trainees for training under NEEM Regulations. Even the stipend paid to the Appellant, albeit for the sole purpose of disbursing to the trainees, is only a consideration paid to the Appellant for the deployment of the trainees. This is made clear by Para 3 of the Agreement relating to Stipend which states thus: "In consideration of dedicated deployment of the Train ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant is not incurring the cost of the stipend initially and later claiming the same from the Company. They have held that since the Company is paying the stipend amount to the Appellant on the 2nd of the month and the Appellant disburses the stipend to the trainees on the 10th of the month, no expenditure is incurred by the Appellant and the amount received cannot be termed as reimbursement. The Appellant has argued before us that the lower Authority has misconstrued the provisions of Rule 33 and brought in the concept of timing of expenditure which is not present in Rule 33. We are inclined to agree with this argument of the Appellant and hold that the timing of receipt and disbursement of stipend is not the criteria to determine whether the Appellant is a pure agent. What is required to be seen is whether the payment of stipend by the Company to the Appellant is a reimbursement of expenditure which is to have been borne by the Company but met by the Appellant on his behalf as a pure agent. We have already stated that such is not the case in the matter before us. The task of providing adequate training to the enrolled trainees and payment of stipend to the trainees is an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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