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Along with the consideration for the supply of Goods and/or services, a lot of reimbursement of expenditure occurs. Tax is levied on such expenditures, except in case a pure agent incurs the tax, it will not be chargeable to tax. According to section 2(5) of the CGST Act 2017, an agent is a person who carries on the business of supply and/or reception of goods or services on behalf of another like a broker, factor, del credre agent, commission agent, mercantile agent or an auctioneer. However, some agents supply goods or services to and from the principal place of business, without having any intention to gain benefit from the transaction or to hold any title on the goods or services, such agents are known as pure agents. The pure agent only takes the supply of goods/services on behalf of the principal and thus claims reimbursement on the same. This article describes the Concept of Pure Agent in GST.
A pure agent is a registered person who communicates with other suppliers on behalf of his client. According to this theory, while providing services to the client, the pure agent also undertakes to receive some additional services from other service providers and incurs expenditure on behalf of his client. The actual expenditure incurred by a pure agent is later on claimed by him as reimbursement. For instance, an importer authorizing his direct supplier who is a customs broker, to obtain services from third party supplier such as transporter.
The GST Valuation Rules 2017 specifies Pure Agent as a person who:
to the definition given in the GST law, the term “Principal” means a person or
individual on whose behalf an agent carries on the business of supply or
receipt of goods or services, or both.
The expenditure incurred as a pure agent in GST applies in determining the value of a supply for the purpose of taxability. The CGST Rules provides that the expenditure induced as a pure agent, will be excluded from:
However, the exclusion rules will apply to the pure agent only if he fulfills all the criteria to be considered as a pure agent. And, also in case the supplier must satisfy the conditions specified in the rules.
Read our article:ITC restrictions for availing credit in accordance with Rule 36(4) of the CGST Rules
The supplier must satisfy the following conditions for exclusion from value as under:
Pure Agent in GST usually incurs the costs on behalf his client and later the
actual amount can be claimed as reimbursement. Thus, it should be clear as to whether
this value mentioned in the invoice of the pure agent in GST, should be
included or excluded in determining the taxable value of supplies made by the pure
agent to his client.
While assessing the value of taxable supply, any expenditure made by the supplier as a pure agent of the recipient shall be excluded from the value of supply. Henceforth, the pure agent concept in GST becomes more significant from the point of determining the taxable value on which GST needs to be levied.
Also, Read: Goods Transport Agency under GST- Meaning, Services, GST Rate and Place.
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