Pure Agent in GST

A pure agent is a registered taxable person, engaged by a client who undertakes services from other suppliers and incurs expenditure on behalf of his client.

The difference between Circuit and a real life pure agent is that in movie Circuit was bound by his friendship with Munna, wherein real life pure agent is bound by his financial interests.

In simple language, pure agent is a person who takes services from other service providers for his client, pays from his own pockets and is later imbursed by the client only for the expenditure incurred while availing services from others.

He claims from his client only what he has spent. He does not add his profit margin or commission.

This is the main point of difference between an agent and a pure agent.

Agent is a person who works for others on commission basis whereas a pure agent is a person who does not earn commission on work done for others.

The concept of Pure Agent concept in GST is explained in rule 33 of CGST rules, 2017.

Let us try to understand with an example –

A firm, Delhi Traders is an importer and Mumbai Export & Import Agency is a customs broker. DELHI Trader approaches MUMBAI Export & Import Agency for customs clearance work for an import consignment. The clearance of import consignment and the delivery of the consignment to DELHI Trader would also require taking service of a transporter. So DELHI Trader authorises MUMBAI Export & Import Agency to incur expenditure on his behalf for procuring the transportation. DELHI Trader then agrees to reimburse the actual transportation cost to MUMBAI Export & Import Agency.

In this example –

Delhi Trader seek customs clearance services by Mumbai Export & Import Agency. This is the main service and would be on principal to principal basis. Mumbai Export & Import Agency would earn commission to carry out this.

.  The ancillary service (transportation) which Mumbai Export & Import Agency would avail on behalf of Delhi traders to complete the assignment would be on pure agent basis.

·       The expenses incurred by MUMBAI Export & Import Agency on transportation will be claimed as reimbursement.

·       This reimbursement will not be included in the taxable value of supply.

According to Law, Pure Agent is 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.

·       In our example, Mumbai is authorised to receive and incur expenditures towards transportation services acting as pure agents on behalf of Delhi Traders.

Neither intends to hold nor holds any ownership to the goods and/or services so procured or provided as pure agent of the recipient of supply.

·       In our example, MUMBAI 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 and/or services so procured; and

·       The transportation services received by MUMBAI Export Agency is not on his own interest, instead it is on behalf of DELHI Traders.

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.

·       Assuming the transportation cost incurred by MUMBAI 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 DELHI Traders.

Some examples of pure agent are:

1. Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods.

2. Expenses incurred by C&F agent and reimbursed by principal such as freight, go down charges.