The Concept of pure agent was first introduced in the erstwhile Service Tax Determination of value Rules, 2006 Regime. The Same concept of pure agent in GST is applicable.
A pure agent is a registered taxable person who liaises between other suppliers on behalf of his client. Under this concept, while providing services to the client, he also undertakes to receive other ancillary services from other service providers, and incurs expenditure on behalf of his client. The actual expenditure incurred by a pure agent is later claimed as reimbursement.
In other words, over and above the value of services rendered to his client, any other expenditure incurred by a pure agent (on behalf of his client) will be a reimbursement.
Let us understand the concept of pure agent with an example
A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment. The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.
So A, also authorizes B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals.
Therefore in the above mentioned example:-
- Providing customs Brokers service to A is on a principal to principal basis.
- The Expenses for transport of consignment incurred by B on behalf of A and reimbursed by B would be considered as pure agent
Who is “Pure Agent” under GST
A pure agent is defined under GST as anybody who Contract with the recipient of supply to act as his Pure agent. He agrees to incur additional expenditures or costs on goods or services on his behalf.
This implies that there is an agreement in terms of ancillary supplies which supplier will receive and incur expenditure on behalf of the recipient. In the above example of customs clearances services, Mr. B is authorized to receive and incur expenditure towards transportation services acting as pure agent of A.
Does not intend to hold ownership of the goods or services procured or supplied as a pure agent.
Considering the above example, as a pure agent, B should not hold any title of goods or services which are supplied to recipient.
Does not use such goods or services for own use
This implies that the goods or service procured by a pure agent is not used for his own interest and this fact can be determined from the terms of contract. In the above example, the contractual agreement says that, B is only to provide services related to clearance of goods from customs, and not responsible for delivery of goods to A’ premises. Therefore, the transportation services received by B is not on his own interest, instead it is on behalf of A.
Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
A pure agent should receive only the actual amount incurred on behalf of the recipient. If he claims more than the actual amount, he will not be considered as a pure agent. Assuming the transportation cost incurred by B is Rs 20,000, and if he claims more than Rs.20, 000, he will be not considered as a pure agent for receiving the transportation services on behalf of A.
Conditions for Excluding Value of Pure Agent Services
Expenditure or costs incurred by the supplier as a pure agent of the recipient of service shall be excluded from the value from the value of taxable supply if all the following conditions are satisfied which are as follows:
- The service provider acts as a pure agent of the recipient of service when he makes payment to third party on authorization by such recipient.
- The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
- The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account
- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B
- Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies
- The fees charged by the Registrar of the Companies registration and approval of the name are compulsorily levied on B
- A is merely acting as a pure agent in the payment of those fees.
- Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
Component charged in invoice
Travelling expenses; Hotel expenses
Suppose a Customs Broker issues an invoice for reimbursement of a few expenses and for consideration towards agency service rendered to an importer. The amounts charged by the Customs Broker are as below:
In the above situation, agency income and travelling or hotel expenses shall be added for determining the value of supply by the Customs Broker whereas Docks dues and the Customs Duty shall not be added to the value, provided the conditions of pure agent are satisfied.
- The concept of pure agent has direct implications on the value of taxable supply.
- It affects the amount of GST charged on a particular supply.
- It also impacts the aggregate turnover of the supplier which is important for calculating the threshold limit for registration.
Conditions specified for pure agents and those in the valuation rules have to be met so that only the real value is subjected to GST.