Introduction

  • Pure Agent is a registered taxable person who collaborates with other suppliers.
  • He undertakes to receive ancillary services from other suppliers of goods or services and incurs expenditure on behalf of his client.
  • Thereafter, the pure agent will claim the expenses he incurred as reimbursement.

In other words, the one who

  • makes a supply to the recipient
  • receives and incurs expenditure on some other supply on behalf of the recipient
  • claims reimbursement of expenditure actually incurred without adding it to the value of the main supply

Who is a “Pure Agent” under GST?

A pure agent is a person who,

  • Contracts with the recipient of supply to act as his pure agent. He agrees to incur additional expenditures or costs on goods or services on his behalf.
  • Does not intend to hold ownership of the goods or services procured or supplied as a pure agent.
  • Does not use such goods or services.
  • Receives only the amount actually incurred to procure such goods or services (in addition to the amount received for the supply which he provides himself).

Valuation

The expenditure incurred as a pure agent will be excluded from the value of supply and also from the aggregate turnover.

Conditions

To become a pure agent, a person will fulfil the following conditions and exclude expense from the value of the supply.

  • A pure agent has to make payments to the third party on the authorization by the recipient of goods or services.
  • Has to separately indicate the payments in the invoice issued to the recipient.
  • The supplies procured by the pure agent from the third party as a pure agent are in addition to those he provides himself.

The expense is included in the value of supply under GST if they do not satisfy the conditions above.

Example

ABC is an importer and XYZ is a customer broker agency. ABC approaches XYZ agency for the customer clearance work for an import consignment. XYZ will also take the services of a transporter along with the clearance of import consignment and delivery of the consignment to ABC. So ABC authorizes XYZ agency to incur expenditure on his behalf for procuring the transportation. ABC agrees to reimburse the actual transportation cost to XYZ agency.

From above, we can conclude that:

  • The services provided by XYZ agency is the main service sought out by ABC which would be on a principal-to-principal basis.
  • The transportation service received by the XYZ agency on behalf of ABC is on Pure Agent basis.
  • They will claim transportation expenses reimbursement since it is not part of a taxable value of customs broker services.

Conclusion

  • The concept of pure agent has direct implications on the value of taxable supply.
  • As a result, it affects the amount of GST charged on a particular supply.
  • Furthermore, it also impacts the aggregate turnover of the supplier which is important for calculating the threshold limit for registration.
  • Therefore, conditions specified for pure agents and those in the valuation rules have to be met so that only the real value is subjected to GST.

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