Value in case of Pure Agent
Rule 7 of draft GST Valuation Rules provides that 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 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.
The aforesaid eight clauses need to be simplified in order to avoid litigation. For example, clause (i) will never be satisfied because there will be no contract available to prove that instructions to act as pure agent are issued. An inference may be drawn to provide that a existence of a contract is mandatory which might not be the intention of the law.
If this rule is meant for only statutory and fee payments then this be made clear.
If not, it is suggested that the aforesaid conditions to verify the expenditure or costs incurred by the supplier as a pure agent be reconsidered especially clauses (i), (iv) and (vii).