Applicability of GST under RCM for Hotel / Tour booked abroad

Whether the same will be covered under Import of Services.

The term ‘reverse charge’ as defined in the Act is reproduced below:

‘’reverse charge’’ means the liability to pay tax by the recipient of goods or services or both instead of the supplier of goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act;’’

Thus there are totally four subsections under which RCM liability can arise. Let’s analyse them in deep

both under sub-section (3) of section 9 of CGST act, or under sub-section (3) of section 5 of the Integrated Goods and Services Tax Act	11 Specified services notified by Govt via various notification. 2 additional services notified under IGST act via Notification No. 10/2017- Integrated Tax (Rate) .
Sub-section (4) of section 9 or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act	These sections were kept in abeyance till 30/09/19 vide notification no. 12/2018 Central Tax (Rate). On 29th March, 2019 through Notification No. 07/2019 Central Tax (Rate) the Govt has notified only 3 type of Good and services. Thus in the present scenario Section 9(4) is only applicable for the “Promoters” who are engaged in Supply of the above mentioned services, without any exemption limit.

Clearly booking of travel package/Hotel abroad is not notified under 11 specified services u/s 9(3) and 3 specified services under 9(4). Thus the only notification which plays devil in our case and tries to levy GST under RCM is Notification No. 10/2017- Integrated Tax (Rate). Lets read the relevant notification under detail:-

	Service	Supplier	Receiver
i	Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient	Any person located in a non-taxable territory	Any person located in the taxable territory other than nontaxable online recipient.

On the plain reading of the above it appears that any service provided from outside country to anyone inside country is covered under RCM via Sec 5(3) of IGST act vide Notification No. 10/2017- Integrated Tax (Rate).

Now let’s explore the savior sections and clauses.

The Rule 33 of the CGST Rules, 2017 read as under:

Value of supply of service in case of pure agent:

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, If all the following conditions are satisfied, namely,-

(i) 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;

(ii) the payment made by the pure agent on behalf of the recipient of supply hos been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) 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.

Explanation.- For the purposes of this rule, the expression “pure agent” means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither Intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

The GST Act defines an Agent as a person including a factor, broker, commission agent, orhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

The important thing to note is that it pure agent does not use the goods or services so procured for his own Interest and this fact hos to be determined from the terms of the contract. Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided.

Thus The value of ‘hotel accommodation’ paid by the client to them, which is remitted by them to the foreign hotel / hotel aggregator cannot be included in such taxable value, provided the conditions of pure agent are satisfied.