When Commission Becomes Salary: Analysing the Karnataka High Court’s Landmark Ruling on Pigmy Agents and GST Liability
In Karnataka Vikas Grameena Bank Vs Deputy Commissioner of Commercial Taxes, the Karnataka High Court examined whether GST is payable under reverse charge on commission paid to pigmy agents. The tax department treated such agents as business facilitators, triggering GST liability under Section 9(3) of the Central Goods and Services Tax Act, 2017. However, the Court focused on the true nature of the relationship and held that pigmy agents function as employees, not independent agents. Relying on control, supervision, wage structure, and Supreme Court precedents, it ruled that their services fall under Schedule III, which excludes employee services from “supply” under GST. Since no supply exists, GST and reverse charge provisions do not apply. Consequently, all show cause notices were quashed as legally unsustainable. The ruling emphasizes substance over nomenclature and clarifies that employment relationships are outside GST scope.
1. Setting the Scene: A Routine Inspection That Sparked a Legal Storm
Let’s start with a simple question:
If a bank pays “commission” to its deposit collectors, should GST apply?
Seems straightforward, right? The department thought so too.
But when Karnataka Vikas Grameena Bank faced a GST inspection under Section 67 of the CGST Act, 2017, things took an interesting turn.
