Hello friends, greetings for the day there are lots of confusion on the topic of pure agent under GST so in the current topic we will discuss about Pure agent.

As per 2(5) of CGST Act agent means a person, including a 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. We must understand that services provided as an agent to its principal is totally different from pure agent. Agent works as an mediator on the other hand pure agent only takes supply of  goods or services on behalf of principal and against that pure agent receives reimbursement for the same.

What is pure agent and what is the relevance of pure agent under GST

Pure agent is one who while making supply to the recipient also incurs and receives expenditure on the supply made on behalf of principal. 

We should take an example to understand this concept further:-

A is an importer who goes to B for custom clearance work in respect of an import of one consignment. The clearance of goods would also require taking service of transporter. So A also authorizes B to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse the payment to be made to the transporter. In this scenario B is providing custom broker service to A, which is principal to principal basis and the transportation services procured by B on behalf of A is an Pure agent service and expenses incurred by B on transportation should not form part of value of custom broker service.

As per section 2(5)  of CGST Act agent means a person including a factor, broker , 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;

This concept was earlier given in Service tax determination rules 2006 and carried forward under GST .Under GST Rules 2017, Rule 33 says that a “Pure agent” means:-

  • A person who 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
  • Neither intends to hold or holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply.
  • Does not use for his own interest such goods or services so procured as pure agent.
  • 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.

According to Rule 33 of CGST Rules, notwithstanding anything contained in the provisions in this chapter the expenditure or the cost 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 of the supply when he makes the payment to the third party on authorization by such recipient.
  • 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
  • The supplies in the form of goods or services procured by the pure agent from the third party are in addition to the services he supplies on his own account.

In case the following conditions are not satisfied such expenditure incurred shall be included in the value of supply under GST.

Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilised at actuals. In this case, let’s say the value of transport service was Rs.10,000/-. If the Customs Broker charges any amount more than Rs.10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.

Value of “Exclusion”

Expenditure incurred as a pure agent becomes relevant when it comes to determining the value of supply for levy of GST. Rule 33 provides that the expenditure incurred as a pure agent will be excluded from the value of supply and also would be excluded from the aggregate turnover. However such exclusion of expenditure incurred as pure agent is possible only if all the conditions are required to be considered as a pure agent and further conditions given in rule 33 are satisfied by the supplier in each case.

 Illustration:

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:

S.No. Component charged in invoice Amount
1 Agency Income Rs. 10000/-
2 Traveling expenses ; Hotel expenses Rs. 15,000/-
3 Customs Duty Rs. 55,000/-
4 Docks Dues 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.

In case of any doubts in the current topic or provisions of Indirect taxation (GST and CUSTOMS) then you may contact us at abhutpurv@gmail.com

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