Finally decoded! How buying agents can manage ‘complicated issue’ of GST

by Dheeraj Tagra

20-November-2018  |  7 mins read


Even after 17 months of GST (Goods and Services tax) implementation, many stakeholders of the textile and apparel industry are struggling about the new taxation policy and allied processes. Buying agents are also one of them as they too fight GST issues.

Surprisingly few buying agents are paying 18 per cent GST on the commission they are receiving while many are not. Even some buying agents claim that they don’t come under GST as they are service providers and bring foreign currency to the country. To create awareness and spread clarity on the issue, various organizations are working collectively.

Apparel Resources talked to a number of buying agents and experts on this issue to decode how the former can manage GST.

Lokesh Parashar, Director, Adkindia LLC, Delhi
Lokesh Parashar, Director, Adkindia LLC, Delhi

Lokesh Parashar, Director, Adkindia LLC, Delhi who is also the flag bearer of Federation of Buying Agents (FBA) shared that one of the major reasons for the problem faced by buying agents is that the Government was not recognizing them as a separate body. However, now SEPC (Services Export Promotion Council) has added a new category of “Others” and now buying agents are recognized as service exporters. “I will suggest that every Buying Agent should get registered under SEPC as service providers & avail exemption from GST,” he insisted.

SEPC, set by the Ministry of Commerce & Industry, Government of India is an apex trade body which facilitates service exporters.

Lokesh further announced that as a benefit of being registered service exporters, one can avail 5 per cent SEIS (Service Export from India Scheme) incentive from the government. All members need to come forward and avail this benefit and FBA will help its members to get the same.

Lokesh further informed that majority of buying agents are unaware with the exact details and the system that how they have to proceed as far as GST is concerned. FBA, a platform created for the buying agents have taken initiatives in this regard. “We are organizing seminars in which subject experts guide buying agents on GST and allied issues. FBA have had meetings with senior Government officials to convey them that we are generating foreign currency for our country and explaining the kind of support the Government can offer to grow the business multi-fold. We are in process to create a desk where buying agents can seek any kind of help on regular basis,” he said.

Many buying agents are not aware of the SEPC and benefits of its membership. After FBA awareness, some such agents are now going to avail it so they can get further benefits. Rajesh Bhatia, CEO, Nexus International, Faridabad, a buying agent, told, “It seems really beneficial and I have made my mind to explore SEPC membership as FBA told me.”

Ajay Abrol, UA Consultants, Faridabad and Secretary, FBA

“There are some small but very important points which are not known by many buying agents like they should use RBI’s P006 code which is for receiving the service fee (commission) as service exporters come under this code only”, Ajay Abrol, UA Consultants, Faridabad and Secretary, FBA, told Apparel Resources.

Ajay also informed about a pending writ petition as filed in the Gujarat High Court for GST reversal. The case is under hearing as of now and chances are that the buying agents may get back whatever GST has been paid so far. FBA members are also a party in this case.

Rajat Mangla, CA and Partner of Shyam Sunder Mangla & Co. shared his expert opinion, “Looking at the law, there is a need to change some terminology at the end of buying agents to remove ambiguity from their working. His suggestion, buying agents should write themselves as service providers and rather than using the word ‘commission’, ‘brokerage’, use the correct terminology of service fee which is more suitable and apt with the kind of work the buying agent performs.”

Rajat Mangla, CA and Partner of Shyam Sunder Mangla & Co.
Rajat Mangla, CA and Partner of Shyam Sunder Mangla & Co.

It also makes a lot more sense in the GST regime as GST is applicable on commission agents and not service providers. Similarly, terms like price negotiation and sourcing of products need to be avoided because it falls in intermediator definition while the “identification of the product” and “Supply Chain Management” actually describes their services in a much better manner.

Rajat further suggested a few prerequisites in GST avoidance such as the payment should be in foreign exchange, service provider and service taker should not work like a branch or head office.

Rohit Guha, Founder, Access India, Delhi agreed with Rajat’s suggestion and added that buying agents help on various fronts by doing multiple activities and works like supply chain managers so they should use terms like service providers and service fees across the board.

During the discussion, it emerged out that many buying agents don’t have a proper service contracts put in place. While proper service contract is a core document to prove authenticity for any relationship not only from the perspective of avoiding GST but at the same time ensuring the opportunity for getting insurance cover. Buying agents can get their service fee insured. Apparel Resources will soon update its reader on the same.

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