Value of supply of services in case of pure agent :
Often, a supplier incurs some expenditure on behalf of recipient and then recovers the amount from him. Such expenditure is not part of value of supply provided by him to service recipient, but is incurred by him as per business practice or convenience.
Following illustrations may clarify the provisions –
♦ Outward transport charges paid on behalf of recipient.
♦ Entry tax amount paid by Clearing & Forwarding Agent, Customs Broker or Transporter on behalf of owner of goods/Principal.
♦ Customs duty, dock dues, demurrage, transport charges etc. paid by Customs Broker on behalf of client.
♦ Special inspection arranged as per specific requirement of recipient.
♦ Advertisement charges paid by Advertising Agency to newspaper on behalf of clients.
♦ Ticket charges paid by Travel Agent to railways or airlines and recovered from his customer.
Expenses incurred as pure agent of recipient – The aforesaid are not part of value of ‘supply’ and hence are not includible in value of supply.
Hence, GST Valuation Rules provide as follows—
Notwithstanding anything contained in these rules, 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, if all the following conditions are satisfied:—
(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 are in addition to the supply he provides on his own account – rule 7 of Valuation Rules.