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Pure Agent in GST
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Pure Agent in GST
Definition of Agent:
Section 2(5) defines “agent” as an individual , including an element , broker, commission agent, arhatia, del credere agent, auctioneer, or the other mercantile agent, by whatever name known, who engages within the supply or document of goods or services or both on behalf of another.
Who is Pure Agent:
Pure Agent may be a person who, while making a supply to the recipient, also receives and incurs expenditures on another supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the worth of his own supply) from the recipient of the main supply. The provider of service and recipient of service have a principal-to-principal relationship with reference to the primary service, but a pure agency relationship with reference to supplementary services. the subsequent illustration clarifies the concept of a Pure Agent:
A is an importer, while B may be a customs broker. An approaches B regarding customs clearance work for an import shipment. The clearance of the import shipment and its delivery to A would also necessitate the services of a transporter. Therefore, A authorizes B to incur expenses on his behalf so as to secure the services of a transporter, & agrees to reimburse B for the particular cost of transportation. within the given example, B is providing A with Customs Brokerage services on a principal-to-principal basis. The ancillary service of transportation is acquired by B on behalf of A as a pure agent, and B’s transportation expenses shouldn’t be included in the value of the Customs Broker service provided by B to A. In essence, this is often the relevance of the pure agent concept in the GST.
Pure Agent is a private who
- Enters into an agreement with the receiver of supply to act as his pure agent to incur expenses or costs in reference to the delivery of goods, services, or both;
- Neither intends to carry nor does hold any title to the goods or services or both procured or provided as the recipient of supply's pure agent.
- Does not use the acquired goods or services for his own benefit; and
- In addition to the amount he receives for supplies he provides for his own account, he receives only the particular cost incurred to acquire such goods or services.
Costs incurred as a pure agent become relevant when determining the worth of a supply for GST purposes. The valuation rules stipulate that expenses incurred as a pure agent are excluded from the worth of the supply and, by extension, the entire revenue. However, such exclusion of expenses incurred as a pure agent is merely possible if the supplier in each case satisfies all conditions required to be considered a pure agent as well as any additional conditions specified in the rules.
Supplier Conditions as Pure Agent:
For exclusion from value, the supplier must satisfy the subsequent conditions:
- When the supplier makes payment to a 3rd party with the recipient's authorization, the supplier acts because the recipient's agent.
- In the invoice issued by the pure agent to the receiver of service, the payment done by the pure agent on behalf of the receiver of supply has been itemized.
- The supplies acquired by the pure agent from the third party because the recipient of supply's pure agent are in addition to the services he performs for his own account.
- In the event that the conditions are not met, such expenses shall be included within the value of the supply under GST.
Illustration:
- Business Setup in India is contracted to handle the incorporation-related legal work for XYZ PRIVATE LIMITED.
- In addition to its service fees, Business Setup in India recovers from XYZ PRIVATE LIMITED the registration fee and name approval fee paid to the Registrar of Companies.
- XYZ PRIVATE LIMITED is required to pay the fees assessed by the Registrar of Companies for registration and name approval.
- Business Setup in India acts only as an agent within the payment of these fees.
- Therefore, Business Setup in India's recovery of those expenses is a reimbursement and not part of the value of the supply made to XYZ PRIVATE LIMITED by Business Setup in India..
Port fees, Port charges, customs, dock dues, transport charges, etc. paid by Customs Brokers on behalf of the owner of the products. Expenses caused by the C&F agent and reimbursed by the principal, like freight, and godown charges.
A pure agent concept is crucial for businesses because of its direct implications for the taxable service value. It directly affects the quantity of GST charged on a specific supply. It also affects the supplier’s total annual revenue, and thus the calculation of the registration threshold. Whenever the purpose is to act as a pure agent, care must be taken to make sure that the conditions specified for such agents and additional conditions outlined in the valuation rules are met, in order that only the true value of the service provided is subject to GST.
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