Under the GST system in India, the valuation of supply is an essential aspect that assesses the amount of tax payable by businesses. The concept of a pure agent is an important consideration in the valuation of supply under GST, especially for those engaged in providing services. The provisions for this have been referred to in Rule 33 of the CGST Act.
A pure agent refers to an individual who:
In essence, a pure agent acts as a conduit for the supply of goods or services, and their role is limited to facilitating the transaction between the supplier and the recipient of the supply.
The term “Principal” refers to a person on whose behalf an agent conducts the business of supplying or receiving goods or services or both, according to the definition given in the GST law.
Rule 33 under the CGST Act includes provisions regarding the exclusion of expenditure or costs incurred by a supplier acting as a pure agent or the recipient of the supply from the value of supply, subject to certain conditions being met.
To illustrate this concept, consider the example of a corporate services firm handling legal work to incorporate a company. The firm may recover registration and approval fees paid to the Registrar of Companies from the client and its service fees. Since the fees charged by the Registrar of Companies are compulsory and the firm acts as a pure agent in paying those fees, the recovery of such expenses is considered a disbursement and not part of the value of supply made by the firm to the client.
The valuation supply rule under GST in the case of pure agents is an important aspect to consider for businesses operating in India. The GST law excludes expenditure or costs incurred by a supplier acting as a pure agent of the recipient of supply from the supply value. These rules ensure that businesses are not subjected to tax on expenses not intended for their own benefit but rather incurred on behalf of the clients.