GST: Valuation Rules for Pure Agents

Value of Supply in Case of Pure Agent under GST: Detailed Analysis of Rule 33 of the CGST Rules, 2017

Introduction

The distinction between a “pure agent” and a “principal-agent” relationship under the GST framework often leads to confusion, resulting in unintended tax implications for businesses and their clients. This article presents a focused analysis to clearly differentiate these concepts and examines the valuation treatment of transactions involving pure agents, in light of Rule 33 read with Section 15 of the CGST Act, 2017.

The Goods and Services Tax Act 2017 in India has introduced significant clarity and structure in the taxation of supply of goods and services. One particular area of interest is the treatment of agents and, more specifically, the concept of the “pure agent.” Section 2(5) of the Central Goods and Services Tax (CGST) Act, 2017, defines an agent as:

“A person including a factor, broker, commission agent, arhtiaa, 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.”

While agents typically act for others in the supply or receipt of goods and services, GST law recognizes a special class—the pure agent. The distinction is crucial in the context of valuation, especially for excluding certain pass-through costs from the taxable value of supply.

Who is a Pure Agent? Importance in GST

A pure agent is essentially a person who, while supplying a main service or goods, incurs certain additional expenses on behalf of the recipient (such as government fees, transportation, electricity, etc.), and recovers these expenses at exact cost without markup or profit.

This distinction is important because, under specific conditions, such reimbursed amounts can be excluded from the value of taxable supply, ensuring that GST is not levied on mere pass-through expenses.

Pure Agent vs Principal-Agent: Key Differences

Pure Agent:

A pure agent is a person who incurs expenses on behalf of the recipient of supply and seeks reimbursement at actuals, without any markup or profit. The classic hallmark of a pure agent arrangement is that the cost incurred does not form part of the value of supply of the agent’s primary service, provided all prescribed conditions are met.

Principal-Agent:

Conversely, a principal-agent relationship is characterised by commercial intent, wherein the agent supplies goods or services on behalf of the principal, and the revenue earned including any reimbursement of expenses typically forms part of the value of supply. Here, the agent acts in the capacity of an extension of the principal’s business, and GST is levied on the entire amount charged, inclusive of reimbursements, unless explicitly excluded under relevant provisions

Legal Provision: Rule 33 of CGST Rules, 2017

Rule 33 of the CGST Rules, 2017, governs the valuation of supplies involving pure agents.

Text of Rule 33 – Value of Supply in Case of Pure Agent

“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…”

• The supplier acts as a pure agent of the recipient when making payment to the third party on the authorization of the recipient.
• The payment made by the pure agent is separately indicated in the invoice issued to the recipient.
• The supplies procured by the pure agent from the third party are in addition to the services he supplies on his own account.

Who Qualifies as a Pure Agent?

A person qualifies as a pure agent only if all the following criteria are met:

Illustration 1: Custom Broker as Pure Agent

Scenario:

A (Importer) hires B (Custom Broker) for import clearance. B also arranges and pays for transportation of goods directly on A’s behalf. B raises an invoice with these details:

• ₹5,000 for customs clearance services (main service)
• ₹8,000 as reimbursement of transportation charges (at actuals)

GST Treatment:

• ₹5,000 is taxable under GST as service charges.
• ₹8,000 is not taxable if:
• It is shown separately in the invoice,
• The actual cost is charged (no profit),
• The importer has authorized the agent to incur this cost,
• The agent acts as a pure agent.

Conclusion:

GST is not applicable on ₹8,000 as it is a pure agent reimbursement, provided all Rule 33 conditions are strictly met.

Illustration 2: Mega Flex Plastics Ltd – Real Case Ruling

Case Reference:

WBAAR Order No. 23/WBAAR/2024-25 dated 27.02.2025

Applicant: Mega Flex Plastics Ltd, Howrah

Facts:

• Mega Flex leased a warehouse to White Saffron Grains LLP.
• Electricity charges collected on actuals, as per sub-meter readings.
• Electricity was in Mega Flex’s name but consumed by the tenant.
• Lease agreement and invoices reflected reimbursements separately.

Application of Rule 33 in Mega Flex Case

Ruling:

“The applicant is not liable to pay GST on reimbursement of electricity charges on actual basis.”

This is in line with CBIC Circular No. 206/18/2023-GST dated 31.10.2023, which clarified that recovery of electricity at actuals, without markup, makes the supplier a pure agent for such reimbursement.

Practical Relevance: When is the Pure Agent Concept Applied?

Best Practices to Claim Pure Agent Benefit

• Clear contractual authorization: Always ensure there is explicit written authorization allowing the agent to incur costs on behalf of the recipient.
• Invoices must reflect reimbursed costs separately: Segregate actual reimbursements from main supply in all invoices.
• Maintain third-party invoices and payment proof: Always keep copies of third-party bills and evidence of payment made on behalf of recipient.
• No markup or profit on reimbursement: The agent must not charge more than the actual cost incurred.
• Documentation for audit/scrutiny: Maintain robust records to substantiate the pure agent claim in future audits.

Conclusion

The concept of the pure agent under Rule 33 of the CGST Rules, 2017, provides much-needed clarity and relief to businesses acting on behalf of clients. It ensures that pass-through costs not forming part of the primary supply are excluded from GST, provided all conditions are stringently satisfied. The Mega Flex Plastics Ltd case serves as a guiding precedent for structuring such transactions compliantly. However, any deviation from the stipulated rules may result in the entire amount becoming taxable. Businesses are, therefore, advised to adopt best practices and maintain thorough documentation to safeguard against future disputes.

The contents of this article are for informational and educational purposes only and do not constitute legal or professional advice. While every effort has been made to ensure the accuracy of the information, the author and the publisher disclaim any liability for errors or omissions. Readers are advised to consult a qualified professional or legal advisor before acting on any information provided herein.

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