This Article is discussing the concept of Pure Agent under the GST Law with circular and case laws. The provisions in this regard have been provided under rule 33 of the CGST Rules. The rule 33 is reproduced as under:
Rule 33 of CGST Rules 2017: Value of supply of services in case of pure agent
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the 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; and
(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.
Explanation.- For the purposes of this rule, the expression “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 supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) 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.
Illustration- 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 the Registrar of Companies. The fees charged by the Registrar of Companies for the 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.
On perusal of the said rule, it has been noticed that the rule has been divided in three parts.
First part is containing conditions towards amount incurred by a person in the capacity of Pure Agent on behalf of his recipient.
Second part is containing terms to the understand the expression of “Pure Agent”.
Third part is explaining an illustration in regard to understand the concept of transaction done by the Pure Agent.
Mere receiving payment under the cover of re-imbursement account shall not fall under term of payment received by a pure agent until all statutory provisions stated under rule 33 of the CGST Rules are fulfilled.
The terms and conditions as stipulated under rule 33 are analyzed as under:
Rule 33(i) – Authorisation – At the time of payment the person would have been authorized by his recipient for making such payment. If the payment is made first and authorization is received after making the payment then such term shall not be satisfied.
Example – According to the illustration stated in rule 33 the Company was duly authorized when the company made payment to the Registrar of Company on behalf of his client.
Advance Ruling – M/s ENPAY TRANSFORMER COMPONENTS INDIA PRIVATE LIMITED 2021-VIL-210-AAR the Applicant could not establish that the Supplier of the Applicant was duly authorized at the time of making payment of stamp duty for giving bank-guarantee in favour of the Applicant. In this case the Applicant was importer and the payment of stamp duty was made by his Supplier outside India.
Advance Ruling – M/s TEAMLEASE EDUCATION FOUNDATION 2022-VIL-76-AAR The Applicant could not establish that payment of stipend as made to the students was made under any contractual agreement with the industry partner.
Rule 33(ii) – Invoicing – The second condition is that no separate invoice be issued against amount incurred on behalf of the recipient. Such incurred amount shall be separately indicated in the regular invoice issued by the Pure Agent to the Recipient.
Advance Ruling – M/s ENPAY TRANSFORMER COMPONENTS INDIA PRIVATE LIMITED 2021-VIL-210-AAR in this case the separate and independent invoice was issued against payment made on behalf of the Applicant. The Advance Ruling Authority has ruled that the condition has not been fulfilled by the Applicant by issuing separate invoice. The provision requires not to issue separate invoice but the same (amount incurred) should be indicated separately in the invoice to be issued for regular supply of goods or services.
Rule 33(iii) – Additional Supply – The nature of supply procured by the Pure Agent from the third party as a Pure Agent of the recipient are in addition to the services, he (Pure Agent) supplies on his own.
Example – The Custom Clearing Agent makes payment of IGST on behalf of his client shall be treated as payment made under the capacity of the Pure Agent. But the Clearing Agent hires loading and unloading agency for specific work of the Client then such procured services shall be treated for his own supply of services and not be treated services procured in the capacity of the Pure Agent.
Advance Ruling – M/s TEAMLEASE EDUCATION FOUNDATION 2022-VIL-76-AAR – In this case the Applicant failed to inform with regard to procurement of supplies from the third party i.e. trainees/students.
Explanation to Rule 33 for meaning of “Pure Agent”
(a) Contractual Agreement – Both parties (Pure Agent and Recipient of the Pure Agent) shall have agreed to that the Pure Agent shall incur expenditure in the course of supply of supply of goods or services or both on behalf of the recipient;
In the above stated advance rulings the Applicants were failed to produce any agreement before the Advance Ruling Authority. It could not be proved that the expenses were incurred by the Applicants in the capacity of the Pure Agent.
(b) Title on goods or services – The Pure Agent never intends to hold nor holds any title to the goods or services or both so procured or supplied as Pure Agent of the recipient of supply.
(c) No any interest of the Pure Agent on such goods or services so procured and
(d) Amount to be Received – The Pure Agent shall receive actual amount as incurred by him. No any profit part shall be added to such recoverable amount from the recipient.
Circular No. 115/34/2019-GST dated 11-10-2019 – It has been clarified that amount recovered by Airlines from passengers in account of PSF (Passenger Service Fee) and UDF (User Development Fee) on behalf of Airport Authority shall not be part of the value charged by Airlines from their customers if conditions stated under the rule 33 relating to the Pure Agent are satisfied.
In the case of Appellate Advance Ruling Uttar Pradesh M/s ION TRADING INDIA PRIVATE LIMITED 2021-VIL-16-AAAR the employer being an Appellant has been treated as Pure Agent for providing parking space to his employees. The reasons of the ruling are as under:
1. For Rule 33(i) – The appellant has submitted that they obtains parking facility on authorization/request made by their employees and makes payment thereof only on the basis of said authorization.
2. For 33(ii) – The appellant has submitted that they specifically indicated the amount to be recovered from the employees for parking charges in the employee manual, though the same is an approximate amount and the said amount is not clubbed with other charges, if any, recovered from the employees.
3. For 33(iii) – The appellant has contended that they, on their own account, provides facilitation assistance to the employees and in addition to this they also procure services of parking from the Building Authority and provides it to employees in capacity of a pure agent.
4. For explanation (a) – Any employee who wants the car parking facility formally requests the appellant to facilitate the same with the Building Authority. The employee also provides email/verbal confirmation for availing the facility and also agrees to pay the charges for the parking space.
5. For explanation (b) – The parking spaces are availed for the sole usage of the employees. This is duly informed by the appellant to the employees as well as to the Building Authority. Further, the appellant submits that in case of surrender of parking space by any employee, it is immediately surrendered back to the Building Authority.
6. For explanation (c) – The parking spaces are for the sole usage of the employees. The appellant does not own any vehicles and therefore the parking spaces have no relevance for the operations of the Appellant.
7. For explanation (d) – The appellant recovers the amount of parking charges payable to the Building Authority from all the employees using the parking facility and nothing more. Further the entire amount recovered from the employees is paid to the Building Authority towards parking charges.
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PLEASE CONFIRM IN WHOSE NAME THE INVOICE SHALL BE ISSUED FROM THE SUPPILIER IN CASE OF PURE AGENT?