In GST, the value of supply is the foundation for calculating tax liability. Generally, it includes all charges, fees, and incidental expenses incurred by the supplier in the course of providing goods or services.
However, there are instances where a supplier incurs expenses on behalf of the recipient — not as part of their own service but merely as a facilitator. If the supplier is acting in the capacity of a pure agent, such expenses are excluded from the value of supply, provided certain conditions are met.
Rule 33 of the CGST Rules, 2017 deals specifically with such scenarios to avoid taxing reimbursements that are purely pass-through costs.
Meaning of a “Pure Agent”
A pure agent is someone who:
- Acts on behalf of the recipient under a contractual agreement to incur expenditure or costs in the course of supply.
- Does not take ownership/title of goods or services procured for the recipient.
- Does not use such goods or services for personal or business benefit.
- Recovers only the actual amount spent on procuring such goods or services, in addition to their own service charges.
Example:
A law firm agrees to register a trademark for a client. It pays government filing fees to the Trademark Office on behalf of the client and later bills the client for:
- Service Fee: ₹20,000 (for legal services)
- Actual Filing Fee: ₹4,500 (paid to Trademark Office)
Here, the filing fee is a pure agent expense — it is not part of the value of supply for GST purposes.
Conditions for Excluding Pure Agent Expenses from Value of Supply
For the exclusion to apply, all three of the following conditions must be satisfied:
Acting as a Pure Agent upon Authorisation
The supplier must act on authorisation from the recipient when making payment to the third party.
- Meaning: The supplier is not deciding on its own to incur the expense; the recipient instructs or authorises it.
Example:
An event management company books hotel rooms for a client’s conference after receiving written approval from the client. The hotel cost can be excluded if other conditions are met.
Separate Indication in Invoice
The payment made by the pure agent must be separately shown in the invoice issued to the recipient.
- Meaning: The invoice must clearly differentiate between the supplier’s own service charges and the pure agent expense.
Example:
| Description | Amount (₹) |
| Event Management Fee | 1,00,000 |
| Hotel Charges (as pure agent) | 50,000 |
| Total | 1,50,000 |
Expenses Are in Addition to Supplier’s Own Services
The goods or services procured from a third party must be in addition to the supplier’s own service/goods supplied.
- Meaning: The supplier’s own services must exist independently of the pure agent expenses.
Example:
A CA firm provides auditing services and also pays government ROC filing fees for the client. The audit service is independent of the ROC fee — hence, the ROC fee qualifies for exclusion.
Explanation of the “Pure Agent” Criteria
The definition in Rule 33 provides four clauses (a) to (d):
| Clause | Requirement | Practical Explanation |
| (a) | Contractual agreement with the recipient | There should be a written or implied agreement authorising the supplier to incur expenses as a pure agent. |
| (b) | No ownership of procured goods/services | The supplier should not own or benefit from the third-party service/goods purchased. |
| (c) | No personal use of procured goods/services | The expense must be solely for the recipient’s benefit. |
| (d) | Recovery of only the actual amount | The supplier cannot add a markup to the third-party payment. |
Practical Examples
Example 1 – Legal Services for Company Incorporation (as in GST Illustration)
- Scenario: Corporate services firm A is engaged to incorporate Company B.
- Expenses: Firm A pays ₹5,000 as ROC registration fee and ₹1,000 for name approval to the MCA.
- Treatment: These government fees are pure agent expenses if separately shown in the invoice. GST applies only on A’s professional fee.
Example 2 – Customs Clearance Agent
- Scenario: A customs broker clears goods for an importer and pays ₹25,000 as customs duty on the importer’s behalf.
- Treatment: Customs duty is a statutory levy on the importer. The broker recovers it without markup and shows it separately in the invoice. The duty is excluded from GST valuation.
Example 3 – Event Management Company
- Scenario: Event firm XYZ charges ₹2,00,000 as event planning fee and pays ₹80,000 to a hotel for rooms booked for the client’s guests.
- Treatment: The ₹80,000 can be excluded from GST valuation if the hotel invoice is in the client’s name and the amount is separately shown.
Important Points & Cautions
- All three conditions must be satisfied — failure of even one will lead to inclusion in the value of supply.
- Mark-up not allowed on pure agent expenses; otherwise, they lose the exemption.
- Documentation is key — written authorisation, invoices from third parties, and clear segregation in billing must be maintained.
- If the expense benefits both the supplier and the recipient, it cannot be treated as a pure agent expense.
Legal Reference
- Rule 33, CGST Rules, 2017
- Related sections: Section 15 (Value of Supply) of the CGST Act
Relevant CBIC Clarifications: Circular No. 47/21/2018-GST, dated 08.06.2018