Section 2(5) of the CGST characterizes an agent as a person who carries on the matter of supply as well as reception of goods or services in the interest of another, as a factor, broker, commission specialist, arhatia, del credere operator, auctioneer or some other trade agent. However, aside from these agents, there are agents who supply goods/services to and from the Principals place of business, with no expectation of profiting by the transaction or hold any title of goods as well as services, such agents are known as Pure Agents. In opposition to the previously mentioned agents, who work as a middle person, the pure agent just takes the supply of goods or services in the interest of principal and guarantee reimbursement against the same.
Who can be characterized as a Pure Agent under GST?
Under GST Valuation Rules 2017, Pure Agent is an individual who –
- goes into a contractual agreement concurrence with the beneficiary of supply to behave as his pure agent to bring out expenditure or expenses in the course of goods or services or both;
- neither means to hold nor holds any title to the goods or services or both, so obtained or given as a pure agent of the beneficiary of supply;
- does not use for his own advantage such goods or services so procured; and
- Gets just the actual amount incurred to secure such goods or services by adding to the total amount got for supply he gives in the account.
Meaning of Principal
According to the definition given in the GST law, the expression “means” signifies an individual for whom an agent carries on the business of supply or receipt of goods or services or both.
Valuation Rule for Pure Agents
As per the valuation rule, the consumption or tax acquired by the provider as a pure agent (contracted to the beneficiary of the supply of services) will be rejected from the value of supply, if the majority of these conditions are fulfilled:
The pure agent makes a payment to a third party, for the beneficiary, for acquiring a supply when the contract for the supply of services obtained is between the third party and the beneficiary;
The beneficiary of the supply is the main user of the services acquired by the pure agent from the third party;
The beneficiary of the supply is liable to make pay to the third party;
The beneficiary of the supply approves the pure agent to make pay for his sake;
The beneficiary of the supply realizes that the third party gives the services (for which the pure agent has made payment);
The installment made by the pure agent in the interest of the beneficiary of supply has been independently demonstrated in the receipt issued by the agent;
The pure agent recovers from the beneficiary only such amount as has been paid by him to third party; and
The services obtained by the pure agent from the third party are in addition to the supply/service he provides on his own
To comprehend the idea better, let us consider an example as given below:
A importer approaches a Custom Broker for clearance of his import consignment. For this reason, the Customs Broker additionally requires the assistance of a transporter. So, the importer requests that the Custom Broker acquire consumption in the interest of him and get them reimbursed. Customs Broker clears the consignment and transports them to the importer. He charges the clearance expenses and transportation costs independently. The transportation costs charged by him rises to the amount paid by him to the importer. For this situation, Custom Broker has never held the title of the consignment. Likewise, he doesn’t find anything from transporting the consignment to the importer. While charging to importer he independently showed the amount paid by him for transporting consignment. Thus, for this situation, Custom Broker will be named as the pure agent of the importer.
Following are a few instances of pure agent:
Port fees, Port charges, Custom duty, dock dues, transport charges and so forth paid by Customs Broker on behalf of the owner of products.
Costs brought about by C& F agent and reimbursed by principal, for example, freight, godown charges.
At whatever point the aim is to go act as a pure agent, care ought to be taken to make sure that the conditions indicated for such pure agents are met and goods and services are estimated appropriately. Likewise, GST Law excludes the estimation of services given as Pure Agent from the turnover. So it ought to be noticed that the costs spent and reimbursed as a part of Pure Agent are excluded in all total turnover of the agent.
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