Section 2(5) of the CGST Act 2017, defines the word agent as a person who does the business of supply and or reception of goods or services on behalf of some other person like a broker, factor, commission agent, mercantile agent or an auctioneer. A pure agent is a registered person who talks with other suppliers on behalf of his client. The pure agent undertakes to get some additional services from other service providers while providing services to the client, and he incurs expense on behalf of his client. Such an expense incurred by a pure agent shall be claimed by him later as reimbursement.
As per GST valuation rules 2017 a pure agent is a person who signs off the contractual agreement with the receiver to act as his pure agent and to incur expenses in the supply. Such a person does not have any title on the goods and nether intents to have it. The pure agent shall receive only the definite amount incurred to acquire the goods and services. For instance,- a person hired a CS (Company Secretary) for company incorporation. Such CS pays the registration and other fees to the Registrar of Companies. The person reimburses the paid fee to the Company Secretary; therefore, the fee received by the CS is not part of the value of services provided by the CS.
Where a family tour is booked through a tour company where the charges of the hotel are also part of the tour package, the costs of the hotel cannot be considered as reimbursement of expenses because they are not separately shown in the invoice. Therefore this instance is not an example of pure agent concept.
In the pure agent concept, the term principal means a person or an individual under whom the agent carries on the business of supply or receipt of goods and or services.
As per the CGST Rules, the expenses induced as a pure agent shall be excluded from the value of supply and from the aggregate turnover. For such exclusion, the pure agent must fulfill all the conditions to be considered as a pure agent. In order for exclusion from the value, the supplier must satisfy certain conditions. The receiver of the supply must pay the third party, and it must be clear to the recipient of supply that the services are provided by the third party for which the payment has been made by the pure agent. A pure agent incurs the costs or expenses on his client’s behalf, and the amount can be claimed later as reimbursement. When assessing the value of taxable supply, any expense made by the supplier as the pure agent of the recipient will be excluded from the value of supply. Therefore the concept of a pure agent in GST is more essential from the point of knowing the taxable value on which GST must be levied.
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