Understand how valuation of supply of services under GST is done where service provider is a pure agent.

Valuation of Supply under GST – In Case of Pure Agent

Last Update Date : January 08, 2018

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.

Meaning of Pure Agent under GST Law

“Pure agent” means 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.
  • Neither intends to hold nor holds any title to the goods and/or services so procured or provided as pure agent of the recipient of supply.
  • Does not use for his own interest such goods and/or services so procured; and
  • 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.

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.

Conditions Where the Cost Incurred by a Pure Agent should be Deducted from the Value of Taxable Supply

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:

  • The service provider acts as a pure agent of the recipient of service when he makes payment to third party on authorization by such recipient.
  • The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
  • The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

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.

  • Share: