GST liability on commissions and charges paid to overseas director, marketing intermediaries and foreign C&F agents

Background and context

The ruling in In re Sampurnam Hosieries Impex Private Limited (GST AAR Tamilnadu) deals with a common issue for export-oriented businesses: when GST is payable in India on amounts paid to entities located outside India for support functions such as marketing, sourcing orders and logistics.

The assessee, an exporter of garments, approached the Authority for Advance Ruling to understand whether GST would apply, under the reverse charge mechanism, on payments made to:

  • A foreign national director for marketing and procuring export orders
  • Foreign marketing agents who assist in sourcing orders
  • Foreign clearing and forwarding (C&F) agents handling export consignments abroad

The assessee emphasised that all the activities in question were carried out outside India. The AAR examined these issues primarily in light of:

  • The definition of “import of services” in Section 2(11) of the IGST Act, 2017
  • The place of supply rules in Section 13 of the IGST Act, 2017
  • The concept of “intermediary” in Section 2(13) of the IGST Act, 2017
  • Reverse charge notification Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017`

The AAR gave three distinct rulings, treating each category of overseas recipient separately.

Scope of advance ruling application

Queries placed before AAR

The assessee, being under the jurisdiction of the Central Tax authorities, sought advance rulings on the following specific questions:

  1. Commission to foreign director
    One of the company’s directors is a foreign national. He would be responsible for marketing and sourcing orders abroad, and would be paid commission at 15% of invoice value. The assessee sought clarity on the GST implication of this commission.

  2. Commission to foreign marketing agents
    Foreign marketing agents would be paid 20% of invoice value for marketing and sourcing export orders. The assessee wanted to know whether GST is payable on such commissions.

  3. Payments to foreign C&F agents
    Clearing and forwarding activities in foreign countries would be handled by foreign companies or individuals. The question was whether the charges paid to such overseas C&F agents would attract GST under reverse charge.

The jurisdictional officers did not report any pending proceedings on these issues, and therefore the AAR proceeded on the basis that no parallel disputes were pending for the same questions.

Admissibility under Section 97(2)

The Authority examined whether the questions fell within the permissible ambit of an advance ruling as per Section 97(2) of the CGST Act, 2017. That provision allows advance rulings on specific aspects such as classification, applicability of notifications, determination of value and time of supply, admissibility of input tax credit, liability to pay tax, requirement of registration, and whether an activity constitutes a supply.

Key observation:
The AAR held that the assessee’s questions squarely fall under Section 97(2)(e) – “determination of the liability to pay tax on any goods or services or both” – and hence were maintainable.

Having admitted the application, the AAR examined each issue separately.

Issue 1: Commission to foreign director for marketing and sourcing orders

Facts placed before the Authority

During the personal hearing, the Authorised Representative explained the following facts regarding the director’s commission arrangement:

  • The assessee is an exporter of garments.
  • One of its directors is a Swiss national.
  • This director would carry out marketing and sourcing of export orders outside India.
  • He is to receive commission at 15% of the FOB/invoice value of orders sourced by him.
  • No separate salary is paid to this director.
  • As per the “Commission Agreement”, this director, **Mr. Thomas W.