Value of supply in case of Pure Agent Concept in GST [Rule 33 of CGST Rules]
Valuation / Value of Supply – GST Ready Reckoner
GST
Determination of value of supply in case of Pure Agent Concept in (GST Rule 33 Of CGST Rules)
Introduction
* The GST Act defines an Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.
* So, who is a pure agent and why is a pure agent relevant under GST?
* Broadly, speaking a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply . While the relationship between them (provider of service and recipient of se
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act is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilised at actuals.
* In this case, let's say the value of transport service was ₹ 10,000/-. If the Customs Broker charges any amount more than ₹ 10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.
EXCLUSION FROM VALUE
Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST (Rule 33 of CGST Rule). The preceding para explains who will be considered as a pure agent. The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exc
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uded in the value of supply under GST.
The following illustration will make the concept clearer.
* Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B.
* Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies.
* The fees charged by the Registrar of the companies, registration and approval of the name are compulsorily levied on B.
* A is merely acting as a pure agent in the payment of those fees.
* Therefore, A's recovery of such expenses is a reimbursement and not part of the value of supply made by A to B.
Important Case Law :
1. M/S. SREE SUBHA SALES (2022 (11) TMI 259 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA)
* Reimbursement of tree cut compensation amount paid to farmers and land owners during the course of execution of work is not chargeable to GST as the Applicant qualifies to be a Pure Agent a
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available on this matter.
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M/S. 2COMS Foundation – 2022 (6) TMI 1285 – AAR, Maharashtra.
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M/S. Cadmaxx Solutions Education Trust – 2019 (10) TMI 1093 – AAR, Karnataka.
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Premier Vigilance & Security Pvt. Ltd. – 2018 (11) TMI 337 – AAR, West Bengal
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Toll charges paid are not to be excluded from the value of supply under Rule 33. GST shall, therefore, be payable at the applicable rate on the entire value of the supply, including toll charges paid.
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The Applicant is not acting as a 'pure agent' of the Bank while paying toll charges, which are the cost of the service provided to the Banks so that his vehicles can access roads/bridges to provide security services to the recipient.
Important Notification & clarification
1. Clarification on issue of GST on Airport levies Circular No. 115/34/2019-GST dated 11th October 2019
Issue:- clarification on issues relating to GST on airport levies and to clarify that airport levies do not form par
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provided by the airlines to the airport operator (AAI, DAIL, MAIL etc) and airlines shall be liable to pay GST on the same under forward charge. ITC of the same will be available with the airport operator.
2. clarified in erstwhile Service Tax regime by CBEC vide Circular No. 175/01/2014 – ST, Dated: January 10, 2014;
Issue:- If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a 'pure agent' of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or 25/2012-ST ?
Clarification:- In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule.
For illustration, where the payment for an el
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thorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals.
* In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A. This, in sum and substance is the relevance of the pure agent concept in GST.
2. RPM Ltd., registered in Mumbai (Maharashtra), is a manufacturer of paint. It imports a paint mixer machine from Dubai. RPM Ltd enters into a contract with Mudra Logistics, a licensed customs broker with its office at Ahmedabad (Gujarat), to meet all the legal formalities in getting the said machine cleared from the customs station.
Apart from this, RPM Ltd authorises Mudra Logistics to incur, on its behalf,
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10
Telephone expenses
2,000
Compute the value of supply made by Mudra Logistics with the help of given information.
Would your answer be different if Mudra Logistics has charged Rs.13,00,000 as a lump sum consideration for getting the imported machine cleared from the customs station and bringing the same to the warehouse of RPM Ltd.?
In this case
* Mudra Logistics has entered into a contractual agreement with recipient of supply, RMP Pvt. Ltd.., to incur, on behalf of such recipient, the expenses mentioned in S. No. (2) to (7) incurred in relation to clearance of the imported machine from the customs station and bringing the same to the warehouse of the recipient. Further, Mudra Logistics does not hold any title to said services and does not use them for his own interest.
* Lastly, Mudra Logistics receives only the actual amount incurred to procure such services in addition to agency charges. Thus, Mudra Logistics qualifies as a pure agent.
* Further, rule 33
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