Understanding Pure Agent Concept under GST: Key Rules and Examples

Understanding the Concept of Pure Agent Under GST Law

This article explores the concept of a "Pure Agent" as defined under the Goods and Services Tax (GST) framework, with reference to pertinent circulars and case laws. The applicable provisions are outlined in Rule 33 of the Central Goods and Services Tax (CGST) Rules, 2017. The rule states:

Rule 33 of CGST Rules 2017: Value of Supply of Services in Case of Pure Agent

Subject to the provisions of this Chapter, the expenditures or costs incurred by a supplier acting as a pure agent of the recipient of supply shall be excluded from the value of supply if the following conditions are met:

The supplier acts as a pure agent of the recipient when making payments to a third party on the recipient's authorization.
Any payment made by the pure agent on behalf of the recipient must be separately indicated in the invoice issued to the recipient.
Supplies procured by the pure agent from a third party must be in addition to the services provided on the agent's own account.

Explanation: The term "pure agent" refers to a person who:

Enters into an agreement with the recipient to incur costs on their behalf for the supply of goods or services.
Does not intend to hold nor holds any title to the goods or services procured.
Does not utilize the procured goods or services for personal interest.
Receives only the actual amount incurred in the procurement, in addition to the fees for services provided on their account.

Breakdown of Rule 33

Rule 33 is divided into three key parts:

Conditions for Pure Agent Costs: Specifies the circumstances under which amounts incurred by a pure agent can be excluded from the value of supply.
Definition of a Pure Agent: Clarifies the characteristics that define a pure agent.
Illustration for Clarity: Provides an example to elucidate the transaction as a pure agent.

It is crucial to note that payments merely received under the guise of reimbursement will not qualify as payments made by a pure agent unless all statutory provisions specified in Rule 33 are met.

Detailed Analysis of Conditions Under Rule 33

Rule 33(i) - Authorization: Authorization must be established at the time of payment. If payment is made prior to authorization being granted, this condition fails. For instance, in the ruling for M/s ENPAY TRANSFORMER COMPONENTS INDIA PRIVATE LIMITED 2021-VIL-210-AAR, it was determined that the applicant could not prove that the supplier was authorized when making the stamp duty payment.
Rule 33(ii) - Invoicing: No separate invoice should be issued for amounts incurred on behalf of the recipient. Instead, these amounts should be distinctly noted in the regular invoice issued by the pure agent. The Advance Ruling for M/s ENPAY TRANSFORMER COMPONENTS INDIA PRIVATE LIMITED emphasized that issuing a separate invoice would not fulfill this condition.
Rule 33(iii) - Additional Supply: Supplies procured by the pure agent must be supplementary to the services they provide on their own. For instance, if a Custom Clearing Agent pays IGST on behalf of a client, that is acceptable as a pure agent payment. However, should the agent engage a loading and unloading service, that would count as their own service.

Explanation of Pure Agent Characteristics

Contractual Agreement: Both the pure agent and recipient must agree that the pure agent will incur expenses on behalf of the recipient.
No Title to Goods/Services: A pure agent does not assume ownership of goods or services procured.
No Personal Interest: The pure agent cannot use the procured goods or services for their own benefit.
Actual Amounts Received: Only the actual costs incurred can be claimed, with no profit margin included.

Relevant Circular and Rulings

Circular No. 115/34/2019-GST dated 11-10-2019 clarifies that amounts recovered by airlines from passengers for Passenger Service Fees (PSF) and User Development Fees (UDF) on behalf of the Airport Authority should not be part of the value charged, provided the conditions of Rule 33 are satisfied.

In the Appellate Advance Ruling case M/s ION TRADING INDIA PRIVATE LIMITED 2021-VIL-16-AAAR, the employer was considered a pure agent for providing parking spaces to employees based on the following reasoning:

Rule 33(i): Payments made were authorized by the employees.
Rule 33(ii): The amounts were specified separately in the employee manual, not combined with other fees.
Rule 33(iii): Services were provided in addition to personal facilitation by the employer.
Contracts: Employees provided confirmation requests to avail of the parking facility.

Conclusion

Understanding the concept of a pure agent is crucial for compliance under GST law and ensuring correct invoicing practices.