In re Sree Subha Sales (GST AAR Karnataka)
Pure Agent not liable to pay GST on reimbursement of compensation amount paid to farmers and land owners
The AAR, Karnataka in the matter of M/s Sree Subha Sales [Advance Ruling No. KAR ADRG39/2022 dated October 27, 2022] ruled that, if the assessee qualifies to be a pure agent then reimbursement of tree cut compensation paid to farmers and land owners during the course of execution of work is not chargeable to Goods and Services Tax (“GST”).
Facts:
M/s Sree Subha Sales (“the Applicant”) execute government projects on tender basis and their main area of expertise is water supply and underground drainage works. The Applicant was awarded a contract for establishment of sub-station at B.V. Halli in Channapatna taluk from the Karnataka Power Transmission Corporation Limited (“KPTCL”).
The Applicant submitted that, the amount is paid as compensation to the affected persons i.e. land owners/ farmers, by the Applicant as per the contract, wherein, tree cutting, tree cut compensation, crop compensation is reimbursed by the KPTCL as per actuals. Further, as per the agreement, the work order amount does not include the compensation paid to farmers and it is being paid merely as reimbursement. The reimbursement bills are raised to KPTCL by the Applicant during execution of the project and the compensation amount is not included in the contract amount. The Applicant raises a bill to KPTCL with necessary proofs and documents for reimbursement of the same.
The Applicant has sought this advance ruling w.r.t. the applicability of GST for reimbursement of tree cut compensation and land compensation amount paid to farmers and land owners during the course of execution of the work.
Issue:
Whether the GST is applicable on reimbursement of compensation amount paid to farmers and land owners during the course of execution of work?
Held:
The AAR, Karnataka in the matter of Advance Ruling No. KAR ADRG39/2022 held as under:
