Who is an Agent?
Before moving to the concept of pure agent we should understand the term ‘Agent’ which has been defined under section 2(5) of CGST Act, 2017 as under:
“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 a pure agent?
Pure agent is a person who makes a supply of goods and services to the recipient. He undertakes to receive ancillary services from other suppliers of goods & services and incurs expenditure on behalf of his client. Later the actual incurred expenditure is claimed as reimbursement. Whoever the pure agent does not use the goods or services so procured for his own interest. While the relationship between them 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.
Mr. A approach the Consultancy firm M/s B for filling of his income tax return incorporation. M/s B provided the service of filling of income tax return and charge the service fees. In addition to the service fees, M/s B also recovers (as such) from A, tax paid to income tax department. It is very clear that liability to pay such tax to income tax department relates to A. As such, B is merely acting as a pure agent in payment of the tax.
RELEVANCE OF PURE AGENT UNDER GST
The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.
A “pure agent” means a person who :
(a) 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
(b) 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
(c) Does not use for his own interest such goods or services so procured
(d) Receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account
The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract
Valuation of Supply under GST – In Case of Pure Agent
Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The preceding para explains who will be considered as a pure agent. 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.
The supplier would have to satisfy the following conditions
(i) 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
(ii) 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
(iii) 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.
Example :2
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:
| Sr. No. | Component charged in Invoice | Amount |
|---|---|---|
| 1 | Agency Income | Rs.10000/- |
| 2 | Travelling Expenses, Hotel Expenses | Rs. 15000/- |
| 3 | Custom Duty | Rs. 55000/- |
| 4 | Port Charges | Rs. 5000/- |
In the above situation, agency income and travelling/ 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. Some other examples of Pure Agents are:
1. Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods.
2. Expenses incurred by C&F agent and reimbursed by principal such as freight, godown charges .
Example: 3
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.
Exclusion from Aggregate Turnover:
Wherever supplier of goods and services incurred the expenditure as a pure agent then such expenditures will not be included in calculating the aggregate turnover thereof.
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