Introduction
A pure agent is a registered taxable person who liaises between other suppliers on behalf of his client. Under this concept, while providing services to the client, he also undertakes to receive other ancillary services from other service providers, and incurs expenditure on behalf of his client. The actual expenditure incurred by a pure agent is later claimed as reimbursement. In other words, over and above the value of services rendered to his client, any other expenditure incurred by a pure agent (on behalf of his client) will be a reimbursement.
A pure agent example could be, an importer authorising his direct supplier i.e. a customs broker to procure services from a 3rd party supplier such as a transporter.
Therefore, the relationship between the supplier and recipient with respect to the main service, is on a principal-to-principal basis. The relationship between them in respect of other ancillary services is that of a pure agent.
Who is a Pure Agent in GST?
The concept of pure agent was first introduced in the erstwhile Service Tax regime. The same concept of pure agent in GST is applicable. A pure agent under GST is defined as a taxable 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 nor 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.
- 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
How to calculate the Pure Agent value in GST?
A Pure Agent in GST, typically incurs the expenditure on behalf his client and later the actuals will be claimed as reimbursement. Thus, it needs to be clear whether this value mentioned in the pure agent invoice under GST , should be included or excluded in determining the taxable value of supplies made by the pure agent to his client.
In determining the value of taxable supply, any expenditure incurred by a supplier as a pure agent of the recipient shall be excluded from the value of supply. Thus, pure agent concept in GST, becomes more relevant from the point of determining the taxable value on which GST needs to be levied.
Conditions to exclude Pure Agent service value
In order to be eligible for excluding the pure agent service value from the total value of supply, the pure agent need to satisfy the following conditions in addition to being a pure agent in GST.
- The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation 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
- 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.
The value will be allowed to be excluded from taxable value only when all of the above conditions are meet. In case conditions are not satisfied, such expenditure incurred shall be included in the value of supply.
Conclusion
For businesses engaged in providing pure agent services, it is very important to determine the value of pure agent service since it has a direct impact on the taxable value and the amount of GST to be levied. Also the businesses need to ensure that various pure agent conditions are satisfied so that they are eligible to exclude the pure agent value, and charge GST only on the actual value.
