In Industry still there are many confusions regarding what is Pure Agent and what are conditions to act as pure agent especially when there is a case of 'Reimbursement of Expenses'. Under GST Act, Reimbursement of Expenses received from Recipient of Services/Goods is Not Taxable only if the Supplier of Goods/Services is considered as Pure Agent which is explained under Rule 33 of CGST Rules 2017.
Let's Start with decoding the Rule:
"Rule 33 of CGST Rules 2017: Value of supply of services in case of pure agent
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;
(ii) 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
(iii) 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.
Explanation.- For the purposes of this rule, the expression "pure agent" means a person who-
(a) 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; (b)
(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
Illustration- 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 the Registrar of Companies. The fees charged by the Registrar of Companies for the 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 disbursement and not part of the value of supply made by A to B. "
Rule 33 (i) deals with Authorisation i.e. while making the payment to third person supplier should act as pure agent and he should be authorised by the recipient to make such payments.
Following Advance Rulings wherein Applicant could not prove that he was authorised to make the payment and Advance Ruling Denied the status of Pure Agent
M/s ENPAY TRANSFORMER COMPONENTS INDIA PRIVATE LIMITED 2021- VIL-210-AAR
M/s TEAMLEASE EDUCATION FOUNDATION 2022-VIL-76-AAR
Rule 33 (ii) deals with Invoicing i.e. there should be single Invoice raised to the Recipient for reimbursement of cost incurred and for the value of supply provided by supplier for his/her service, reimbursement should be separately indicated in the Invoice. There cannot be two different Invoices for Reimbursement and for services provided by the supplier
Rule 33 (iii) deals with Additional Supply i.e. The nature of supply procured by the Pure Agent from the third party as a Pure Agent of the recipient are in addition to the services which he/she supplies on his own i.e. Pure Agent to the recipient.
So, we have dealt with main rule, we will go ahead with Explanation which deals with What is Pure Agent for purpose of Rule 33
a. Contractual Agreement: Supplier should enter into contractual agreement with Recipient to act as Pure Agent to incur expenditure or cost
b. Ownership of Goods/Services: Pure Agent should hold or there should not be any intention to hold the Tile of Goods/Services procured as Pure Agent from third Person
c. Own Use: Pure Agent should not use the goods/services so procured for Own Use
d. Actual Amount: Pure Agent should receive the exact amount of cost/expenditure incurred in relation to procurement of goods/services, and there should not be any profit component while recovering such amount
Anyone can refer to Appellate Advance Ruling Uttar Pradesh M/s ION TRADING INDIA PRIVATE LIMITED 2021-VIL-16-AAAR wherein the Applicant was considered as Pure Agent clause by clause as per Rule 33.
Disclaimer: We request readers to seek professional advice before arriving at any decision/conclusion after reading. We are not responsible for any loss arising to anyone after referring and relying on this article. Above views are based on our understanding of the provisions.
The author can also be reached at office.bhavikco@gmail.com
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