GST on Pure Agents
Who is a Pure Agent?
In GST act, an agent is 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.
In simple words, a pure agent is a person who is receiving supply on behalf of another person (principal) in the course of providing service to such person and only receiving reimbursement of expenditure from the principal.
An important condition is that such an agent should get the only reimbursement of such expenditure and should not charge more than what he has paid for such expenditure. Surely agent will charge its commission/brokerage for his services.
Example – A is an importer and B is a Customs Broker. A approaches B for customs clearance work in respect of an import consignment. The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.
So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actual.
In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of the value of Customs Broker service provided by B to A. This, in sum and substance is the relevance of the pure agent concept in GST. The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.
In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.
In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importer’s place) and thus would not be considered as a pure agent for the services of transport procured.
Valuation and Taxability in Case of the Pure Agent
In case of a pure agent, the value of services provided by him doesn’t include the expenditure incurred as a pure agent. Only the commission/brokerage charged by such agent is considered as value for GST purpose.
Also for purpose of calculation of aggregate turnover, value excluding such expenditure is taken into consideration. Therefore it has an important bearing on the fact that a person is required to take registration or not.
Such exclusion of expenditure from the value of supply is possible only when the agent is considered as a pure agent as per above-mentioned conditions and also the following conditions are satisfied by such agent.
The supplier acts as a pure agent of the recipient of the supply when he makes 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.
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.
Some More Examples
A person hired a company secretary for company registration. Such a company secretary pays registration fees and other fees to Registrar of Companies. The person reimburses such fees to the company secretary, this fees will not be a part of the value of services provided by such company secretary.
Expenses incurred by C&F agent and reimbursed by principal such as freight, godown charges.
A person books a family tour for his family from a tour company. Charges for the hotel is also included in package. Such hotel charges cannot be considered as a reimbursement of expenses as they are not separately indicated in an invoice. Therefore this is not a case of the pure agent.
A person charges Rs. 5,000 for his services and Rs. 10,000 as pure agent for transportation expenses. GST is payable on Rs. 5,000 only and not on Rs. 15,000.