How to Calculate the Pure Agent Value in GST
In our earlier blog, Who is a Pure Agent in GST? , we discussed various conditions a registered taxable person has to meet to be qualified as a pure agent. In this blog, we will be answering the questions: What is the relevance of determining the Pure Agent Services? Where does it really impact? Also, we will discuss how to calculate the Pure Agent Value.
As discussed in previous blog, Pure Agent incurs the expenditure on behalf his client and later the actuals will be claimed as reimbursement. Now the question is, should this value be included or excluded in determining the taxable value of supplies made by pure agent to his client.
In determining the value of taxable supply, any expenditure incurred by a supplier as a pure agent of the recipient shall be excluded from the value of supply. Thus, pure agent service becomes more relevant from the point of determining the taxable value on which GST needs to be levied.
Let us understand how to calculate pure agent value in GST with an example.
Rose Traders is an importer and Sam Export & Import Agency is a customs broker. Rose Trader approaches Sam Export & Import Agency for customs clearance work with respect to an import consignment. Sam Export & Import Agency agree to provide the clearance service for a consideration of Rs. 60,000.
The clearance of import consignment and delivery of the consignment to Rose Trader, would also require taking service of a transporter. So Rose Trader authorises Sam Export & Import Agency to incur expenditure on their behalf for procuring the transportation and agrees to reimburse the actual transportation cost to Sam Export & Import Agency. Sam Export & Import Agency incurred an expenditure of Rs. 15,000 for transportation. In addition to transportation expenditure, he is also authorised to incur expenditure toward Customs Duty Rs. 30,000 and Docks charges Rs. 3,000.
Now in the arriving the taxable value, value of pure agent service Rs. 48,000 (15,000+30,000+3,000) should be excluded from Total invoice value of Rs. 1,08,000 and GST is charged only on Rs. 60,000.
In order to be eligible for excluding the pure agent service value from the total value of supply, the pure agent need to satisfy the following conditions in addition to being a pure agent.
- The supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient.
Let’s consider the above example: Sam Export & Import Agency as a pure agent of Rose Traders, is authorised to makes payment of transportation, customs duty and dock charges. Also, if you observe, the above charges are levied on Rose Traders and Sam Export & Import Agency just acting as a pure agent in making those payments.
- 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.
This implies that in the invoice issued by Sam Export & Import Agency, the expenditure incurred towards Transportation, customs duty and Dock Charges are separately indicated.
- 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.
Transportation supplies procured, and payment of customs duty and Dock Charges made by Sam Export & Import Agency as pure agent, is in addition to his customer clearance services provided to Rose Traders.
The value will be allowed to be excluded from taxable value only when all of the above conditions are meet. In case conditions are not satisfied, such expenditure incurred shall be included in the value of supply.
For businesses engaged in providing pure agent services, it is very important to determine the value of pure agent service since it has a direct impact on the taxable value and the amount of GST to be levied. Also the businesses need to ensure that various pure agent conditions are satisfied so that they are eligible to exclude the pure agent value, and charge GST only on the actual value.
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