PURE AGGENT IN GST

Pure Agent in GST

Who is Agent:

Section 2(5): “agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

Who is Pure Agent:

Pure Agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply . While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent. With the following example, we can clear the concept of Pure Agent:

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 authorises 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. In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A. This, in sum and substance is the relevance of the pure agent concept in GST.

Pure Agent is a person who

  • enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

  • neither intends to hold nor holds any title to the goods or services or both, so procured or provided as pure agent of the recipient of supply;

  • does not use for his own interest such goods or services so procured; and

  • 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.

Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.

Supplier Conditons as Pure Agent:

The supplier would have to satisfy the following conditions for exclusion from value as under:

  • the supplier acts as a pure agent of the recipient of the supply, when he makes payment to the 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.

In case the conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.

Illustration:

  • CompaniesHouse is engaged to handle the legal work pertaining to the incorporation of Company XYZ PRIVATE LIMITED.

  • Other than its service fees, CompaniesHouse also recovers from XYZ PRIVATE LIMITED, 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 XYZ PRIVATE LIMITED.

  • CompaniesHouse is merely acting as a pure agent in the payment of those fees.

  • Therefore, CompaniesHouse’s recovery of such expenses is a reimbursement and not part of the value of supply made by CompaniesHouse to XYZ PRIVATE LIMITED.

Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods and Expenses incurred by C& F agent and reimbursed by principal such as freight, godown charges are examples or pure agent services.

A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation rules are also met so that only the real value of the service provided is subjected to GST.

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