According to section 15 of the CGST Act, the value of supply is the transaction value which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient are not related and the price is the sole consideration for the supply.

However while determining the value of supply of goods or services provided by pure agent, the expenditure or costs incurred by the pure agent on behalf of the recipient, as addition to his main supply, is excluded from the value of supply subject to certain conditions according to the Rule 33.

Who is Pure Agent?

To be eligible as Pure Agent, the following conditions are to be satisfied:

  • Should enter into a contractual agreement with the recipient to act as his pure agent to incur expenditure or costs in the course of supply of goods or services
  • Should not intend to hold or holds any title to the goods or services so procured or supplied as pure agent of the recipient of supply
  • Should not use the goods or services so procured for his own interest
  • Should receive only the actual expenditure incurred for such goods or services in addition to the value of supply of goods or services on his own account

Conditions for Pure Agent for Reimbursement of Expenses

  • The supplier as a pure agent makes the payment to the third party on authorisation of the recipient
  • The payment made by the pure agent should be indicated separately in the invoice issued by the pure agent as a supplier to the recipient
  • The supplies procured by the pure agent should be in addition to the supplies he makes on his own account

 Example-I:

  • ABC Ltd sends a purchase order for supply of goods to XYZ Ltd on FOB basis, however ABC Ltd asks XYZ Ltd to arrange for transportation and the cost of the same will be reimbursed by ABC Ltd
  • XYZ Ltd seeks the transport services of EFG Carriers for the transport of goods to ABC Ltd
  • EFG Carriers charges XYZ Ltd for transportation for Rs.10000/-
  • XYZ Ltd makes payment to EPG Carriers for Rs.10000/-
  • XYZ Ltd raises invoice to ABC Ltd for the supply of goods worth of Rs.100000/- and indicate the transportation charges of Rs.10000/- in the invoice separately and charges GST only on Rs.100000/-
  • ABC Ltd makes payment of Rs.110000/- along with GST, i.e., Invoice Value to XYZ Ltd
  • XYZ Ltd acts as a pure agent in this case and get the transportation costs reimbursed by ABC Ltd

Example-II:

  • ABC Ltd sends a purchase order for supply of goods to XYZ Ltd on CIF basis
  • XYZ Ltd seeks the transport services of EFG Carriers for the transport of goods to ABC Ltd
  • EFG Carriers charges XYZ Ltd for transportation for Rs.10000/-
  • XYZ Ltd makes payment to EPG Carriers for Rs.10000/-
  • XYZ Ltd raises invoice to ABC Ltd for the supply of goods worth of Rs.100000/- and indicate the transportation charges of Rs.10000/- in the invoice and charges GST on the whole amount of Rs.110000/-
  • ABC Ltd makes payment of Rs.110000/- along with GST, i.e. Invoice Value to XYZ Ltd
  • It is a composite supply as there is no contractual agreement for reimbursement of expenses
  • In case XYZ Ltd has its own transport and supplies the goods through such transport then the same is also considered as composite supply as the supplier holds the right to the transport

Disclaimer: The above opinion is based on the author’s understanding of the related law.  Readers are cautioned to seek expert’s legal advice before taking any decision.

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Post Graduate in Commerce having 14+ years of experience in Accounting & Taxation. Contact Email: uday.gstguide@gmail.com View Full Profile

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