The Authority for Advance Ruling (AAR) has held that a hospitality company proposing to undertake hotel accommodation booking services cannot treat hotel booking expenses recovered from customers as “pure agent” reimbursements under Rule 33 of the Central Goods and Services Tax (CGST) Rules, 2017, where the contractual and invoicing structure does not establish the mandatory conditions prescribed for a pure agent.
The AAR ruled that the entire consideration recovered from the customer for hotel room booking, including the hotel accommodation cost and the applicant’s service or facilitation charge, would form part of the taxable value. It accordingly held that the proposed hotel booking service would fall under SAC 998552—reservation services for accommodation, cruises and package tours, attracting 18% GST, comprising 9% CGST and 9% SGST, on the entire consideration received from the end customer.
The applicant proposed a model under which an end customer would approach the company for hotel accommodation. The company would then approach a third-party travel agent having arrangements with hotels to procure the required accommodation.
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Under the proposed arrangement, the third-party agent would issue an invoice in the applicant’s name while identifying the end customer as the consumer of the accommodation service. The applicant would pay the third-party agent and subsequently recover the actual hotel accommodation cost from the customer.
In addition to the reimbursement, the applicant proposed to charge a separate facilitation or service fee for arranging the hotel booking. It sought to treat the accommodation amount as a pure-agent reimbursement and charge GST only on the separately stated facilitation fee.
The applicant specifically sought a ruling on whether it would qualify as a “Pure Agent” under Rule 33 of the CGST Rules and consequently be entitled to charge GST at 18% only on its service or convenience fee.
The applicant argued that it would act exclusively at the request of the end customer and would procure hotel accommodation according to the customer’s specifications.
According to the applicant, the customer would enter into an agency and facilitation arrangement authorising it to incur hotel accommodation expenditure on the customer’s behalf. The applicant claimed that the customer would have the freedom to select the hotel and accommodation standard, while the applicant would merely act as a conduit for making payment.
The applicant further contended that it would have no title or beneficial interest in the hotel accommodation. The hotel room would be exclusively for the customer, and the applicant would not be able to use, sub-let, reassign or otherwise derive any benefit from the accommodation.
Another important submission was that the applicant would recover the hotel cost strictly at actuals, without adding any mark-up or profit margin. Its commercial consideration, according to the proposed model, would be limited to the separately disclosed facilitation fee.
The applicant proposed a bifurcated invoice containing two components: the facilitation/service fee, on which GST would be charged, and the hotel accommodation reimbursement, which would be shown separately as a pure-agent reimbursement.
The applicant relied heavily on Rule 33 of the CGST Rules, which provides for exclusion of expenditure or costs incurred by a supplier as a pure agent of the recipient, subject to fulfilment of specified conditions.
The applicant also relied upon the Delhi Authority for Advance Ruling’s decision in TUI India Private Limited, Order No. 09/DAAR/2018 dated June 28, 2019. It argued that the TUI India ruling supported the proposition that hotel accommodation booked according to a customer’s requirements could qualify for pure-agent treatment even where the hotel or aggregator invoice was issued in the name of the booking intermediary, provided the cost was passed on at actuals.
The applicant also invoked Sections 2(5), 2(105), 2(107) and 15 of the CGST Act to contend that it was merely facilitating the transaction between the hotel/third-party supplier and the end customer and that its own taxable consideration was the facilitation fee.
It argued that including the hotel accommodation cost in its taxable value could effectively result in tax being charged again on an accommodation supply on which GST had already been discharged by the underlying supplier.
The jurisdictional Revenue authorities took a contrary position.
According to the department, the proposed arrangement did not satisfy the requirements of Rule 33 because the applicant had not established an adequate contractual arrangement with the end customer authorising it to act as a pure agent.
A significant objection was that the third-party agent would issue its tax invoice in the applicant’s name. The Revenue argued that merely mentioning the end customer’s name in the invoice would not change the legal position that the applicant was receiving the accommodation service and incurring the contractual liability to pay for it.
The Revenue therefore viewed the transaction as involving two supplies: the supply by the third-party agent to the applicant and the subsequent supply by the applicant to the end customer.
On that basis, the Revenue contended that the amount recovered towards hotel accommodation would form part of the consideration for the applicant’s own supply and could not be excluded merely because it was recovered from the customer at actual cost.
The Authority first considered whether the applicant could be regarded as an “agent” under Section 2(5) of the CGST Act.
Section 2(5) defines an agent to include a person who carries on the business of supply or receipt of goods or services on behalf of another. The Authority noted three important elements: the person must be carrying on a business of supply or receipt of goods or services, and such business must be undertaken on behalf of another.
On the facts presented, the Authority found that the applicant’s proposed activity—facilitating hotel bookings for customers—could fit within the concept of an agent.
However, the Authority made an important distinction between being an “agent” and being a “pure agent” for the specific purposes of Rule 33.
The AAR explained that a pure agent is one who, while making a principal supply to a recipient, incurs expenditure for another supply on behalf of that recipient and recovers that expenditure on an actual basis without including it in the value of its own supply.
The Authority emphasised that the pure-agent concept is governed specifically by the conditions contained in the Explanation to Rule 33.
Rule 33 requires, among other things, that the supplier must act as a pure agent upon authorisation by the recipient, separately indicate the payment in its invoice, and procure the third-party supply in addition to the services supplied on its own account.
The Explanation requires the person claiming pure-agent status to enter into a contractual agreement with the recipient to act as a pure agent; neither intend to hold nor hold title to the goods or services procured; not use the goods or services for its own interest; and receive only the actual amount incurred, in addition to consideration for its own supply.
The Authority found that the applicant had not placed on record the proposed agreement or terms of agreement between itself and the end customer.
This omission became central to the ruling.
The AAR observed that a pure agent must be authorised by the recipient through a contractual agreement to incur expenditure or costs on the recipient’s behalf in the course of supplying goods or services. In the absence of such a contractual arrangement, the Authority held that the applicant could not satisfy the first mandatory condition under Rule 33.
The Authority specifically stated that the end customer should know and authorise the applicant to procure the services of the third-party agent on the customer’s behalf in connection with the hotel booking.
Since no such contractual agreement was produced, the Authority concluded that the applicant failed to satisfy condition (a) of the Explanation to Rule 33.
The Authority then turned to the invoicing arrangement.
Under the proposed model, the third-party booking agent would issue the bill in the applicant’s name. The applicant would then recover the hotel booking amount from the end customer.
For the AAR, this invoicing structure meant that the applicant became the recipient of the service supplied by the third-party booking agent.
The Authority held that issuing the invoice in the applicant’s name created a situation in which the applicant held title to the services supplied by the third-party agent. Consequently, the applicant failed to satisfy the requirement that a pure agent must not hold title to the services so procured.
The Authority also rejected the applicant’s position that it did not use the hotel accommodation for its own interest.
According to the AAR, once the applicant was regarded as holding title to the services procured from the third-party agent, it was effectively using those services for its own interest in providing the hotel booking service to the end customer.
This meant that the applicant also failed to satisfy condition (c) of the Explanation to Rule 33.
The Authority further noted that the applicant was not merely recovering the hotel room booking expenditure. The third-party agent also charged an amount for its intermediary services, and this additional expenditure was incurred without prior knowledge or authorisation from the end customer.
After examining the entire arrangement, the Authority concluded that the applicant failed to qualify as a “pure agent” under Rule 33.
Since the applicant did not satisfy the statutory conditions, the Authority held that the pure-agent valuation mechanism under Rule 33 could not be applied to the proposed transactions.
The ruling therefore rejects the applicant’s proposed tax treatment under which GST would have been confined to the facilitation/service fee.
The AAR ultimately classified the proposed service under SAC 998552, covering reservation services for accommodation, cruises and package tours.
It held that GST would be payable at 18%—9% CGST plus 9% SGST—on the entire consideration received by the applicant from the end customer, rather than merely on the separate facilitation or convenience fee.
Thus, the hotel accommodation amount recovered as a purported reimbursement does not escape the taxable value merely because it is recovered at actuals or separately disclosed in the invoice.
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