Concept of Pure Agent under GST: Definition, Compliance Rules, and Key Rulings
The concept of a Pure Agent under GST allows the exclusion of reimbursed expenses from taxable value, provided strict conditions under Rule 33 of the CGST Rules are met
The concept of a Pure Agent under the Goods and Services Tax (GST) regime is a vital yet often misunderstood aspect of tax compliance. It plays a key role in determining the value of taxable supply, especially for businesses that operate as intermediaries or handle payments on behalf of their clients.
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This article analyzes the legal definition, valuation rules, practical illustrations, and judicial interpretations of the Pure Agent concept. References are drawn from the Central Board of Indirect Taxes and Customs (CBIC), CGST Rules, 2017, Circulars, and relevant rulings.
Definition and Legal Framework
The concept of a Pure Agent is defined in Rule 33 of the Central Goods and Services Tax (CGST) Rules, 2017. A pure agent is a person who, under a contractual agreement with the recipient, incurs expenses on behalf of the recipient in the course of a supply. The key characteristics of a pure agent include:
- They do not hold title to the goods or services procured.
- They do not use the goods or services for their own interest or benefit.
- They recover only the actual amount incurred for such procurement, in addition to charges for their own supply, without any markup.
This framework has its roots in the Service Tax (Determination of Value) Rules, 2006, and continues under GST, reflecting the intent to maintain consistency in tax valuation principles.
Valuation of Supply under Rule 33
According to Rule 33, expenses incurred by a supplier acting as a pure agent are excluded from the value of supply only if the following conditions are met:
- Proper Authorization: The supplier must act under specific authorization from the recipient. For example, in M/s ENPAY Transformer Components India Pvt. Ltd. [2021-VIL-210-AAR], the failure to demonstrate such authorization led to the denial of pure agent status.
- Separate Disclosure in Invoice: The amounts paid by the supplier as a pure agent must be shown separately in the same invoice, not as part of a separate invoice. In M/s ENPAY, the issuance of a separate invoice for reimbursement led to disqualification.
- Exclusivity from Own Supply: The expenses should relate solely to third-party supplies and not form part of the agent’s own service. For instance, in M/s TeamLease Education Foundation [2022-VIL-76-AAR], hiring a third-party service was treated as part of their own supply and not eligible under Rule 33.
CBIC’s Circular No. 115/34/2019-GST dated 11 October 2019 clarified that airlines collecting Passenger Service Fees (PSF) and User Development Fees (UDF) on behalf of Airport Authorities can qualify as pure agents, provided these conditions are satisfied.
Impact on Aggregate Turnover
One major compliance benefit for pure agents is the exclusion of reimbursed amounts from aggregate turnover. This has direct implications for GST registration thresholds. For example, if a supplier’s gross receipts are Rs. 22 lakhs, but Rs. 2.5 lakhs relate to expenses incurred as a pure agent, the net turnover becomes Rs. 19.5 lakhs, thus falling below the Rs. 20 lakh threshold for mandatory registration.
Practical Examples and Invoicing
The CBIC and courts have clarified several practical scenarios where pure agent status may apply:
- Customs Brokers pay port charges, dock dues, and duties on behalf of importers.
- Airlines collect statutory fees for airport authorities.
- Consultants or intermediaries reimbursed for registration fees, government charges, etc.
An illustrative invoice example:
| Component | Amount | Included in Value? |
| Agency Income | Rs. 10,000 | Yes |
| Travel & Hotel Expenses | Rs. 15,000 | Yes (own supply) |
| Customs Duty | Rs. 55,000 | No (if Rule 33 conditions met) |
| Docks Dues | Rs. 5,000 | No (if Rule 33 conditions met) |
Such segregation ensures clarity in tax treatment and compliance.
Judicial Rulings and Advance Rulings
Judgments continue to shape the practical interpretation of pure agent provisions:
- In ENPAY Transformer Components (2021), the absence of authorization and separate invoicing disqualified pure agent treatment.
- In TeamLease Education Foundation (2022), payments not covered under an explicit agreement were held as part of the agent’s own supply.
- In ION Trading India Pvt. Ltd. (2021-VIL-16-AAAR), the company was treated as a pure agent for parking spaces provided to employees, fulfilling all required conditions.
These cases underline the importance of documentation, invoicing, and clear contractual terms.
Recent Developments and Continuity from the Pre-GST Regime
In Seamax Shipping India Pvt. Ltd. v. Commissioner of GST &Central Excise, the CESTAT reportedly held that reimbursements received in the capacity of a pure agent were not taxable under the Service Tax regime. Though this relates to pre-GST law, it indicates continuity of principle, affirming that reimbursements without value addition should not be taxed when Rule 33 is satisfied. Businesses must ensure strict adherence to GST-specific documentation and invoicing norms.
Conclusion
The pure agent concept under GST is both an opportunity and a compliance challenge. It allows businesses to avoid undue tax on reimbursements, but only when all Rule 33 conditions are strictly met. Contractual clarity, proper invoicing, and diligent record-keeping are essential for availing this benefit.
As interpretations evolve, businesses should stay updated through authoritative sources and legal advisories to ensure error-free implementation and avoid disputes. This concept is inherited from service tax but remains highly relevant under GST, especially for consultants, intermediaries, freight forwarders, and service aggregators.
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