Section 15 of the GST Act, 2017, deals with the determination of the value of supply GST Act, 2017, of goods or services. However, it doesn’t specifically address the value of supply in the case of a pure agent. Determining the value for a pure agent falls under Rule 33 of the CGST Rules, 2017.

Here’s how the value of supply is determined for a pure agent under Rule 33:

• Commission or remuneration: If the pure agent receives a commission or remuneration for their services, then the value of supply will be the amount of commission or remuneration received.
• Reimbursement of expenses: If the pure agent receives only reimbursement of expenses incurred on behalf of the principal (the person for whom the agent acts), then the value of supply will be zero. However, the agent can charge a service fee if permitted by the agreement with the principal, and that service fee will become the value of supply.
• Combination of both: If the pure agent receives both a commission/remuneration and reimbursement of expenses, then the value of supply will be the sum of the commission/remuneration and the service fee, if any.

Important points to remember:

• For the rule to apply, the agent must be a “pure agent”. This means they act solely on behalf of the principal and do not have any personal interest in the supply.
• The value of supply determined under Rule 33 is subject to GST at the applicable rate.

EXAMPLE

Pure Agent:

A pure agent acts solely on behalf of another person (principal) in procuring goods or GST Act, 2017, services from a third party. They don’t own or supply the goods/services themselves but facilitate the transaction between the principal and the third party.

WSEC.15 (Valuation Rule 33 under GST Act):

This rule defines the value of supply in specific cases, including for GST Act, 2017,  pure agents. As per WSEC.15, the value of supply for a pure agent is:

• Total amount charged to the principal: This includes the agent’s service fees, commission, or any other charges levied by the agent.
• Plus: Any amount received by the agent on behalf of the third party (like GST Act, 2017, taxes, fees, charges paid to authorities on the principal’s behalf).

However, certain expenditures or costs incurred by the pure agent as per the contract with the principal are excluded from the value of supply:

• Actual amount incurred to procure the goods/services for the principal from the third party.
• Taxes, fees, or charges paid on behalf of the principal to government authorities (but not to the third party).

Examples of Value of Supply for Pure Agent:

1. Travel Agent:

• Agent charges principal Rs. 10,000 for booking flight tickets (service fee).
• Travel agent pays Rs. 1,500 as airport tax on behalf of the principal.

Value of supply: Rs. 10,000 (service fee) + Rs. 1,500 (airport tax) = Rs. 11,500

1. Import/Export Agent:

• Agent charges principal Rs. 5,000 for customs clearance services.
• Agent pays Rs. 2,000 customs duty and Rs. 300 port charges on behalf of the principal.

Value of supply: Rs. 5,000 (service fee) + Rs. 300 (port charges) = Rs. 5,300 (customs duty excluded as paid to government)

1. Corporate Lawyer:

• Lawyer charges company Rs. 20,000 for company registration.
• Lawyer pays Rs. 5,000 registration fees and Rs. 1,000 name approval fees to the Registrar of Companies on the company’s behalf.

Value of supply: Rs. 20,000 (service fee) = Rs. 20,000 (registration and name fees excluded as paid to government)

These are just a few examples, and the specific value of supply will depend on the exact service provided by the pure agent and the terms of the contract with the principal.

FAQ QUESTIONS

1. Who is a “pure agent” under GST GST Act, 2017,?

A pure agent is a person who:

• Enters into a contractual agreement with the recipient of a supply to act as their agent.
• Incurs expenditure or costs on behalf of the recipient related to the supply of goods or services.
• Does not add any markup or profit on the incurred expenses.
• Claims reimbursement from the recipient at actuals, without including it in their own supply value.

2. How is the value of supply determined for a pure agent under WSEC.15?

The value of supply for a pure agent is the amount of expense or cost they actually incurred on behalf of the recipient. This excludes any commission, fees, or profits earned by the agent.

3. What documentation is required for a pure agent to claim reimbursement?

The pure agent should maintain proper records and documents to support the expenses incurred on behalf of the recipient. These may include:

• Copy of the agreement with the recipient
• Invoices or bills for the expenses incurred
• Payment receipts for the expenses paid

4. What happens if the pure agent charges a commission or mark-up on the expenses?

If the pure agent charges a GST Act, 2017, commission or mark-up on the expenses, they will lose the benefit of pure agent status. The entire amount, including the mark-up, will be considered their taxable supply.

5. What are some examples of pure agent services?

• A customs broker incurring transportation costs for an import consignment on behalf of the importer.
• A travel agent booking flight tickets and hotel accommodation for a client.
• A marketing agency incurring advertising expenses on behalf of a client.

6. Where can I find more information about the pure agent concept under GST?

• Circular No. 45/13/2017-GST dated 6th September 2017 from CBIC
• Notification No. 14/2017-GST dated 21st July 2017 from CBIC
• “Pure Agent Concept in GST” document from CBIC
• Frequently Asked Questions on the GST Council website (gstcouncil.gov.in)

CASE LAWS

The value of supply of services in case of a pure agent under WSEC.15 of the GST GST Act, 2017, Act, 2017, is determined by excluding the expenditure or costs incurred by the agent as a pure agent of the recipient, if all the following conditions are satisfied:

• Contractual Agreement: The pure GST Act, 2017,  agent must have a contractual agreement with the recipient to act as their pure agent for incurring expenditure or costs in the course of supplying goods or services.
• Acting on Behalf of Recipient: The pure agent must act solely on behalf of the recipient and not in their own interest.
• Limited to Third-party Supplies: The expenditure GST Act, 2017,  or costs incurred must be for procuring goods or services from a third party for the recipient.
• Actual Reimbursement: The pure agent must receive only the actual amount incurred to procure such goods or services, without any markup or commission.
• Separate Services: The services provided by the GST Act, 2017, pure agent on their own account and the services procured as a pure agent must be distinct and identifiable.

If these conditions are met, then the value of supply for the pure agent’s service will be calculated excluding the costs incurred for the recipient. This means that GST will not be levied on those costs.

Relevant Case Laws:

• AAR Chennai Order No. 22/2023-ARA: This ruling clarified that SIPCOT GST Act, 2017, maintenance charges collected from allottees are not taxable under GST as they are considered expenditure incurred as a pure agent by SIPCOT on behalf of the allottees.
• AAR Goa Order No. 09/2022-ARA: This ruling held that a travel agency acting as a pure agent for booking hotels and transportation for its clients, and only recovering the actual costs, is not liable to pay GST on such expenses.