Pure agent in GST 

GST valuation rules released by government covering the important provisions of GST. The expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply. Thus you are not required to pay tax on expanses made as pure agent. 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 payment to the third
party for the services procured as the contract for supply made by third party is between third party and the recipient of supply;

(ii) the recipient of supply uses the services so procured by the supplier service provider in his capacity
as pure agent of the recipient of supply;

(iii) the recipient of supply is liable to make payment to the third party;

(iv) the recipient of supply authorises the supplier to make payment on his behalf;

(v) the recipient of supply knows that the services for which payment has been made by the supplier
shall be provided by the third party;

(vi) the payment made by the supplier on behalf of the recipient of supply has been separately indicated
in the invoice issued by the supplier to the recipient of service;

(vii) the supplier recovers from the recipient of supply only such amount as has been paid by him to the
third party; and

(viii) the services procured by the supplier from the third party as a pure agent of the recipient of supply arein addition to the supply he provides on his own account.

Thus you are required to take care that all above conditions are satisfied.

Meaning of pure agent in GST

Explanation . – For the purposes of this rule, “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) neither intends to hold nor holds any title to the goods or services or both so procured or provided
as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.

It is important to draft our agreements accordingly. It is advisable to mention the charges paid as pure agent separately on invoice.If any addition is made in original amount it will become chargeable. Thus charge the same amount as paid to third party.

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 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 disbursement and not part of the value of supply made by A to B.

This illustration will make it ore clear. Thus you can refer it for transactions as pure agent.