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Pure Agent Service in GST / Understanding Rule 33: Value of Supply in Case of Pure Agent (With Practical Examples)

Under the Goods and Services Tax (GST) law, the value of supply generally includes all expenses incurred by the supplier in the course of providing goods or services. However, there are situations where the supplier incurs expenses on behalf of the recipient. If certain conditions are met, these expenses can be excluded from the value of supply. Such expenses are covered under Rule 33 of the CGST Rules, which deals with the concept of a pure agent.

This article explains Rule 33 in a simple way with real-life examples, invoice treatment, and GST return implications.

What is Rule 33 of CGST Rules?

Rule 33 provides that if a supplier is acting as a “pure agent” of the recipient and meets specific conditions, the amount paid on behalf of the recipient can be excluded from the value of supply. This means GST is not charged on such amounts.

Who is a Pure Agent? (Definition Explained Simply)

A pure agent is someone who:

1.    Has an agreement with the client to act as a pure agent.

2.    Pays certain amounts on behalf of the client (for third-party services).

3.    Does not hold ownership of such goods or services.

4.    Does not use the goods or services for their own benefit.

5.    Recovers only the actual cost paid to the third party.

In short, the pure agent is only reimbursed by the client for the actual cost incurred, and does not earn any profit on it.

Conditions for Exclusion under Rule 33

For any amount paid on behalf of the client to be excluded from taxable value, all the following three conditions must be fulfilled:

1. Authorization from the Client

The supplier must act on behalf of the client when paying a third party. This should be authorized by the client.

2. Separate Mention in Invoice

The amount paid on behalf of the client must be clearly shown separately in the invoice issued to the client.

3. Additional to Main Supply

The third-party services should be separate from the supplier’s own services. The supplier must be doing something else for the client on his own account (like legal services, consultancy, etc.).

Explanation of the Concept with an Illustration (Given in Law)

Let’s look at the illustration given in Rule 33:

A corporate services firm A Ltd. is hired by B Ltd. to handle the legal work for incorporation of a company.

• Apart from charging a service fee for legal work,
• A Ltd. also pays the government fees for company name approval and registration to the Registrar of Companies (ROC) on behalf of B Ltd.

In this case:

• A Ltd. is only reimbursed by B Ltd. for these ROC fees.
• These ROC fees are compulsory and paid on behalf of B Ltd.
• A Ltd. does not own or use these services.

Hence, A Ltd. is acting as a pure agent, and the ROC fees will be excluded from taxable value. GST will only be charged on the legal service fee.

More Practical Examples of Pure Agent Situations

Example 1: Travel Arrangements by CA Firm

A Chartered Accountant (CA) firm is handling tax consultancy for a company. The company asks the CA firm to book flight tickets and hotel for their directors for a tax hearing.

• The CA firm books the ticket and pays ₹25,000 to a travel agency.
• The firm separately charges ₹25,000 in the invoice (as reimbursement), and ₹15,000 as consultancy fees.

✅ Conditions Met:

• Amount paid on behalf of client.
• Separate mention in invoice.
• Services (ticket booking) are in addition to consultancy.

✅ Result:

• Only ₹15,000 is taxable under GST.
• ₹25,000 is excluded as pure agent reimbursement.

Example 2: Legal Firm Paying Stamp Duty

A legal firm helps a client in property registration and pays stamp duty of ₹50,000 on behalf of the client.

✅ Conditions Met: Legal firm is authorized to pay stamp duty; amount is separately shown in invoice; the legal firm also provides legal advice.

✅ Result: Stamp duty is excluded from GST calculation.

Example 3: Courier Services Paid by Consultant

A marketing consultant pays ₹5,000 as courier charges to send client’s material to distributors and charges ₹30,000 for marketing consultancy.

✅ If it is authorized and separately mentioned, and consultant does not benefit from courier service, ✅ Then only ₹30,000 is taxable under GST.

When Rule 33 Does NOT Apply – Examples

Example 1: No Separate Mention in Invoice

If the supplier includes the reimbursed expenses in a lump-sum total without separately mentioning it in the invoice, Rule 33 will not apply. GST will be charged on the full amount.

Example 2: Personal Use of Service

If the supplier uses the reimbursed goods/services for their own benefit or adds a profit margin on it, Rule 33 is not applicable.

How to Show Pure Agent Transactions in GST Returns

Now that we understand how pure agent expenses are excluded from taxable value, let’s see how to treat them in GSTR-1 and GSTR-3B.

📌 Important Point:

Pure agent expense is not an exempted or nil-rated supply. So, it should not be shown in the tax liability of GSTR-3B.

Invoice Treatment – How to Show Pure Agent Charges

Your invoice should clearly show:

✅ Mention in invoice clearly: "Reimbursement for ROC Fees paid as Pure Agent – ₹5,000"

GSTR-1 Reporting:

• The invoice value (₹16,800) is to be shown in GSTR-1.
• However, taxable value (₹10,000) and GST (₹1,800) are only on service charges.
• Reimbursement amount (₹5,000) is not to be taxed.

🟡 Note: GSTR-1 allows entering both invoice value and taxable value. So you can show pure agent amount in invoice value (B2B only), but exclude it from taxable value.

GSTR-3B Reporting:

• There is no option to show invoice value separately in GSTR-3B.
• Hence, only taxable value (₹10,000) and GST (₹1,800) will be shown.

Accounting Treatment of Pure Agent Expenses

In your accounting books:

• Reimbursed expenses should be treated as recoverable assets.
• These are not your revenue.
• Once the client pays you back, the asset is knocked off.

Example:

| Entry 1 – Payment to ROC |

Dr. ROC Reimbursement A/c ₹5,000 

    Cr. Bank A/c ₹5,000 

| Entry 2 – Invoice to Client |

Dr. Debtor A/c ₹16,800 

    Cr. Service Revenue ₹10,000 

    Cr. GST Payable ₹1,800 

    Cr. ROC Reimbursement A/c ₹5,000 

| Entry 3 – Receipt from Client |

Dr. Bank A/c ₹16,800 

    Cr. Debtor A/c ₹16,800 

Checklist to Determine Pure Agent Transaction

If all are YES, then Rule 33 is applicable and GST is not charged on reimbursement.

Conclusion

Rule 33 is a helpful provision that ensures no GST is charged on reimbursements, provided the supplier is acting as a pure agent and fulfills all necessary conditions.

This rule is widely used by consultants, legal firms, CA firms, event managers, and other service providers who often pay certain charges on behalf of clients.

However, it's important to follow the conditions strictly:

• Have a written agreement.
• Get client authorization.
• Mention expenses separately in the invoice.
• Do not make profit on such expenses.

Proper documentation, accounting, and invoicing are the key to availing the benefit of Rule 33.

 Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.