Question

XYZ is making payment to various parties on behalf of the persons / entities which are related to XYZ. The amount so paid is debited to the respective person / entities account. This being paid on behalf of related parties; will it amount to rendering service to related parties and XYZ will be liable to pay GST on it even if no consideration is received from related parties?

Answer

XYZ is acting as pure agent by making payment to various third parties on behalf of related persons/entities for which no consideration is received from related parties.

Therefore as per Rule 33 of CGST Rules XYZ is not liable to pay GST on service provided to related parties as pure agent as 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 has 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.  (Reply dt.05/12/2018)