Pigmy Agents Treated as Employees – No GST on Commission | HC

Case Details: Karnataka Vikas Grameena Bank vs. Deputy Commissioner of Commercial Taxes (Enforcement-2) [2026] 185 taxmann.com 418 (Karnataka)[08-04-2026]

Judiciary and Counsel Details

• M. Nagaprasanna, J.
• V. Raghuraman, Sr. Adv., Shashank S. Hegde, C.R. Raghavendra & Bhanu Murthy J.S., Advs. for the Petitioner.
• G.M. Gangadhar, AAG & M.B. Kanavi, Adv. for the Respondent.

Facts of the Case

The petitioner, a Regional Rural Bank, was subjected to inspection, pursuant to which DRC-01A was issued by the jurisdictional officer under CGST proposing the levy of GST under reverse charge on commissions paid to pigmy agents. It was submitted that pigmy agents functioned as employees under its control and were not independent business facilitators. Therefore, commissions paid to them constituted wages under an employer-employee relationship. It was contended that such services fell outside the scope of supply and no GST, including under reverse charge, was payable. The petitioner relied upon the terms of engagement, demonstrating that the bank exercised pervasive control over the agents. The petitioner further submitted that classifying such agents as business facilitators was erroneous, as they did not operate as intermediaries under the RBI model. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that the relationship between the petitioner and the pigmy agents constituted that of employer and employee. It held that the commissions paid to such agents were in the nature of wages arising out of employment and not consideration for independent services. The Court interpreted Section 7 read with Schedule III of the CGST Act to conclude that services rendered by an employee to the employer in the course of employment are outside the scope of supply and therefore not exigible to GST. It concluded that classifying such agents as business facilitators was invalid because the factual matrix did not meet the criteria for independent intermediaries and GST, including under the reverse charge mechanism, was not payable on such payments, and the impugned show cause notices were liable to be quashed.

List of Cases Reviewed

• Indian Banks Association v. Workmen of Syndicate Bank 2001 taxmann.com 4526 (SC) (para 11)
• Dharangadhara Chemical Works Limited v. State of Saurashtra 1956 SCC OnLine SC 11 (para 11)
• Hussainbhai v. Alath Factory Tozhilali Union 1978 taxmann.com 278 (SC) (para 11)
• Sushilaben Indravadan Gandhi v. New India Assurance Company Ltd. (2021) 7 SCC 151 (para 11), followed

List of Cases Referred to

• Indian Banks Association v. Workmen of Syndicate Bank 2001 taxmann.com 4526 (SC) (para 7)
• Dharangadhara Chemical Works Limited v. State of Saurashtra 1956 SCC OnLine SC 11 (para 10.1)
• Hussainbhai v. Alath Factory Tozhilali Union 1978 taxmann.com 278 (SC) (para 10.2)
• Sushilaben Indravadan Gandhi v. New India Assurance Company Ltd. (2021) 7 SCC 151 (para 10.3).