Introduction
The Goods and Services Tax (GST) Act defines an agent as a person including a factor, broker, commission agent, Croatia, 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.
A pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement as actual, without adding it to the value of his own supply for such supplies from the recipient of the main supply. While the relationship between the provider of service and recipient of service in respect of 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.
The relevance of Pure Agent Under GST
“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 nor holds any title to the goods or services or both, so procured or provided as a pure agent of the recipient of the 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.
A pure agent does not use the goods or services so procured for his interest and this fact has to be determined from the terms of the contract.
Another important fact is that the person who provides any service as a pure agent receives only the actual amount for the services provided.
Exclusion from Value
Expenditure incurred as a pure agent becomes relevant when it comes to determining the value of a supply for levy of GST.
The expenditure incurred as a pure agent will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as a pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.
The supplier would have to satisfy the following conditions in addition to the condition required to be satisfied to be considered as a pure agent for exclusion from value as under:-
- 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.
In case the conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.
