As per the basic rule of valuation, the direct cost related to end service is often included in the value of services and charged from the customer. Further, on that value GST is calculated and paid to the government. However, pure agent is the different case altogether. Any services provided as pure agent are not included in the ultimate value of the services and hence no GST is charged on that service.
Let us understand who is a pure agent.
“Pure agent” means a person who–
Example: Suppose Mr. A availed a construction service from Mr. B. During the construction period, Mr. A request Mr. B to help him find a shop to buy the best furniture. Mr. B helped him and purchased the furniture from the any company and handed over the bill to Mr. A. Mr. A paid Mr. B actual sum payable for furniture. In this case, Mr. B is also acting as pure agent.
Expenditure or costs incurred by the supplier as a pure agent of the recipient of service shall be excluded from the value from the value of taxable supply if all the following conditions are satisfied which are as follows:
In any case, if the above conditions are not satisfied, the expenditure reimbursed by the recipient to the pure agent shall be included in the value of taxable supply and shall attract GST. Also, it should be included in the aggregate value of taxable supply for the purpose of determining the turnover for registration under GST.
Mr A entered into a contract with Mr B for providing a house construction service for ₹ 30 Lakhs. The contract included for the construction along with painting and finishing but does not have any agreement for furnishing. During the course of construction, Mr A asked Mr B to help him find a trusted supplier of furniture and buy on his behalf. Mr B helped him purchase the furniture, paid ₹ 7 Lakhs on behalf of him and handed over the bills to Mr A.
Mr A subsequently paid Mr B the actual amount of bills indicated separately in his invoice without adding any additional charge. In such case, Mr B is acting as a pure agent.
|S. No.||Component Charged||Amount|
|1.||Construction Charges||₹ 24 Lakhs|
|2.||Painting and Finishing||₹ 6 Lakhs|
|3.||Paid for Furniture||₹ 7 Lakhs|
|TOTAL||₹ 37 Lakhs|
Simply speaking, pure agent is a person who makes a supply of goods and services to the recipient. He undertakes to receive ancillary services from other suppliers of goods & services and incurs expenditure on behalf of his client. Later the actual incurred expenditure is claimed as reimbursement.
When it is known that the goods or services are procured in the capacity of a pure agent for the sole use of the recipient, it becomes easy to determine the aggregate value of supply for the purpose of levy of GST. The reimbursement for expenses so incurred as pure agent on behalf of the recipient shall not form part of the value of supply and shall also be excluded from the aggregate turnover in order to determine the threshold limit for registration under GST which is ₹ 20 Lakhs (or ₹ 10 Lakhs in specified cases).
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