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Published on:
February 25, 2023
By
Paramita

Valuation of Supply Rule Under GST In Case of Pure Agent

According to the Goods and Services Tax (GST) Act, 2017, the supply of goods or services is liable to be taxed. However, there are certain cases in which an agent is involved in the supply of goods or services, and they are known as “pure agent”. In such cases, the agent is not liable to pay tax on the value of the goods or services supplied, but only on the commission or service charges received. In this article, we will discuss the valuation of supply rule under GST in cases where there is a pure agent involved.

What is a Pure Agent?

According to the GST Act, an agent is considered a pure agent if they fulfill the following conditions:

  • The agent acts as a pure agent of the recipient of the goods or services
  • The agent does not have any interest in the underlying goods or services
  • The agent receives only the actual amount incurred on behalf of the recipient

When an agent is considered a pure agent, the value of the goods or services supplied is not included in the value of the taxable supply for GST purposes. Only the commission or service charges received by the agent are liable to be taxed.

Valuation of Supply Rule Under GST

The valuation of supply rule under GST in cases where there is a pure agent involved is based on the actual cost incurred by the agent. The GST Act provides that the value of the supply shall be the open market value of such supply. However, in cases where the agent is acting as a pure agent, the value of the supply shall not include the value of goods or services supplied, but only the pure agent commission or service charges.

Let us consider an example to understand the valuation of supply rule under GST in case of pure agent. Suppose there is a manufacturer who hires a logistics company to transport his finished goods to the distributor. The logistics company charges Rs 10,000 for the transportation service and also incurs an additional cost of Rs 1,000 for packaging the goods. In this case, the value of the supply for GST purposes will be Rs 10,000 (the cost of transportation service) + Rs 1,000 (the actual cost incurred for packaging) = Rs 11,000. However, if the logistics company is acting as a pure agent of the manufacturer, the value of the supply will be only Rs 10,000 (the cost of transportation service) and the additional cost of Rs 1,000 incurred for packaging will not be included in the value of the taxable supply.

Conclusion

The valuation of supply rule under GST in case of pure agent is an important concept that businesses need to be aware of. When an agent is acting as a pure agent, the value of the goods or services supplied is not included in the value of the taxable supply for GST purposes, but only the commission or service charges received by the agent are liable to be taxed. Businesses should ensure that they understand this concept and comply with the GST regulations to avoid any penalties or legal issues.

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Updated on:
March 16, 2024