GST Valuation in case of Pure Agent – How pure agent services are treated under GST Valuation Rules

1.0 Introduction                                   

As per the basic rule of valuation, the direct cost related to end service is often included in the value of services and charged from the customer. Further, on that value GST is calculated and paid to the government.

However, pure agent is the different case altogether. Any services provided as pure agent are not included in the ultimate value of the services and hence no GST is charged on that service.

Let us understand who is a pure agent

2.0 Meaning of Pure Agent under GST rules

“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 and/or services so procured or provided as pure agent of the recipient of supply.

• Does not use for his own interest such goods and/or services so procured; and

• Receives only the actual amount incurred to procure such goods and/or services in addition to the amount received for supply he provides on his own account.

Example: Suppose Mr. A availed a construction service from Mr. B. During the construction period, Mr. A request Mr. B to help him find a shop to buy the best furniture. Mr. B helped him and purchased the furniture from the any company and handed over the bill to Mr. A. Mr. A paid Mr. B actual sum payable for furniture.

In this case, Mr. B is also acting as pure agent.

3.0 Conditions for excluding value of pure agent services

Expenditure or costs incurred by the supplier as a pure agent of the recipient of service shall be excluded from the value from the value of taxable supply if all the following conditions are satisfied which are as follows:

• The service provider acts as a pure agent of the recipient of service when he makes payment to 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 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.

Example: Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

4.0 Conclusion

If you are still confused, then drop your query on info@hubco.in.

Related Links:

• GST Registration
• GST Return Filings
• GST Software

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