A pure agent is a registered taxable person who liaises between other suppliers on behalf of his client. Under this concept, while providing services to the client, he also undertakes to receive other ancillary services from other service providers, and incurs expenditure on behalf of his client. The actual expenditure incurred by a pure agent is later claimed as reimbursement. In other words, over and above the value of services rendered to his client, any other expenditure incurred by a pure agent (on behalf of his client) will be a reimbursement.
Therefore, the relationship between the supplier and recipient with respect to 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.
A. Let us understand the concept of pure agent with an example
Rose Traders is an importer, and Sam Export & Import Agency is a customs broker. Rose Trader approaches Sam Export & Import Agency for customs clearance work for an import consignment. The clearance of import consignment, and the delivery of the consignment to Rose Trader would also require taking service of a transporter.
So Rose Trader authorises Sam Export & Import Agency to incur expenditure on his behalf for procuring the transportation. Rose Trader then agrees to reimburse the actual transportation cost to Sam Export & Import Agency.
In the given illustration,
- Sam Export & Import Agency is providing customs broker service to Rose Traders. This is a main service sought out by Rose Traders which would be on a principal-to-principal basis.
- The ancillary service of transportation is received by Sam Export & Import Agency on behalf of Rose Trader is on pure agent basis. The expenses incurred by Sam Export & Import Agency on transportation is claimed as reimbursement and will not be part of taxable value of customs broker service.
B. Pure agent in GST
The concept of pure agent was first introduced in the erstwhile Service Tax regime and the similar provisions are carried forward to GST. Pure agent under GST is defined as a taxable 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.
This implies that there is an agreement in terms of ancillary supplies which supplier will receive and incur expenditure on behalf of the recipient. In the above example of customs broker services, Sam Export & Import Agency is authorised to receive and incur expenditure towards transportation services acting as pure agent of Rose Traders.
- Neither intends to hold nor holds any title to the goods or services, or both, so procured or supplied as pure agent of the recipient of supply.
Considering the above example, as a pure agent, Sam Export & Import Agency should not hold any title of goods or services which are supplied to recipient.
- Does not use for his own interest such goods or services so procured.
This implies that the goods or service procured by a pure agent is not used for his own interest and this fact can be determined from the terms of contract. In the above example, the contractual agreement says that, Sam Export Agency is only to provide services related to clearance of goods from customs, and not responsible for delivery of goods to Rose Traders premises. Therefore, the transportation services received by Sam Export Agency is not on his own interest, instead it is on behalf of Rose Traders.
The terms of contract is for clearance of goods from customs and delivery to the Rose Traders premises at an agreed price. In this case, Sam Export Agency would be using the transport service for his own interest since the agreement requires him to deliver the goods at the Rose Traders premises. Thus, Sam Export Agency would not be considered as a pure agent for transportation service received.
- 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 should receive only the actual amount incurred on behalf of the recipient. If he claims more than the actual amount, he will not be considered as a pure agent. Assuming the transportation cost incurred by Sam Export Agency is Rs 20,000, and if he claims more than Rs.20, 000, he will be not considered as a pure agent for receiving the transportation services on behalf of Rose Traders.
While all of the above conditions are a must to be qualified as a pure agent under GST but the question which all of us may have is: What is the relevance of determining the Pure Agent Services? Where does it really impact? Watch out for our upcoming blog in which we will be answering these specific questions on pure agent under GST.
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