Pure Agent Concept in GST

INTRODUCTION

The GST Act defines an Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.

So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

Let’s understand the concept by taking an example.A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment.The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter.So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals.In the given illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form part of value of Customs Broker service provided by B to A.This, in sum and substance is the relevance of the pure agent concept in GST.

RELEVANCE OF PURE AGENT UNDER GST

The concept is borrowed from the erstwhile Service Tax Determination of Value Rules, 2006 and carried forward under GST. Under the GST Valuation Rules 2017, a pure agent is given the following meanings.
A “pure agent” means a person who:
(a)           enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both
(b)           neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply
(c)does not use for his own interest such goods or services so procured
(d)           receives only the actual amount incurred to procure such goods or services in addition to the amount received for the supply he provides on his own account
The important thing to note is that a pure agent does not use the goods or services so procured for his own interest and this fact has to be determined from the terms of the contract.In the illustration of Importer and Customs Broker given above, assuming that the contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract.In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured.
Another important fact is that, the person who provides any service as a pure agent receives only the actual amount for the services provided. Coming back to our example of Importer and Customs Broker, the agreement provides reimbursement of transport services utilised at actuals. In this case, let’s say the value of transport service was Rs.10,000/-.If the Customs Broker charges any amount more than Rs.10,000/-, then he will not be considered as a pure agent for the services of transport and the value of transport service will be included in the value of his Customs Broker service.
EXCLUSION FROM VALUE
Expenditure incurred as pure agent becomes relevant, when it comes to determining the value of a supply for levy of GST. The preceding para explains who will be considered as a pure agent.The valuation rules provide that expenditure incurred as pure agent, will be excluded from the value of supply, and thus also from aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible only and only if all the conditions required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier in each case.
The supplier would have to satisfy the following conditions (in addition to the condition required to be satisfied to be considered as a pure agent)for exclusion from value:
(i)   The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient
(ii) The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service
(iii)         The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account
In case the conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.
The following illustration will make the concept clearer:
•        Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B
•        Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies
•        The fees charged by the Registrar of the Companies registration and approval of the name are compulsorily levied on B
•        A is merely acting as a pure agent in the payment of those fees.
•        Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
Some examples of pure agent are:
1.   Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods.
2.   Expenses incurred by C&F agent and reimbursed by principal such as freight, godown charges.
Illustration:
Suppose a Customs Broker issues an invoice for reimbursement of a few expenses and for consideration towards agency service rendered to an importer. The amounts charged by the Customs Broker are as below:

S.No.	Component charged in invoice	Amount
1	Agency Income	Rs. 10000/-
2	Traveling expenses;	Rs. 15,000/-
	Hotel expenses
3	Customs Duty	Rs. 55,000/-
4	Docks Dues	Rs. 5000/-

In the above situation, agency income and travelling/ hotel expenses shall be added for determining the value of supply by the Customs Brokerwhereas Docks dues and the Customs Duty shall not be added to the value, provided the conditions of pure agent are satisfied.
CONCLUSION
A pure agent concept is an important one for businesses as it has direct implications on the value of taxable service. It has direct bearing on the amount of GST charged on a particular supply. It also has bearing on the aggregate turnover of the supplier and therefore on calculating the threshold limit for registration. Whenever the intention is to act as a pure agent, care should be taken to ensure that the conditions specified for such pure agents and further conditions given in the valuation rules are also met so that only the real value of the service provided is subjected to GST.

E-REGISTRATION in GST

Introduction

In any tax system, registration is the most fundamental requirement for identification of tax payers ensuring tax compliance in the economy. Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input Tax Credit for the taxes on his inward supplies. Without registration, a person can neither collect tax from his customers nor claim any input Tax Credit of tax paid by him.

Need and advantages of registration

Registration will confer the following advantages to a taxpayer:

He is legally recognized as supplier of goods or services.

He is legally authorized to collect taxes from his customers and pass on the credit of the taxes paid on the goods or services supplied to the purchasers/recipients.

He can claim Input Tax Credit of taxes paid and can utilize the same for payment of taxes due on supply of goods or services.

Seamless flow of Input Tax Credit from suppliers to recipients at the national level.

Liability to register

GST being a tax on the event of “supply”, every supplier needs to get registered. However, small businesses having all India aggregate turnover below Rupees 20 lakh (10 lakh if business is in Assam, Arunachal Pradesh, J&K, Himachal Pradesh, Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland or Tripura) need not register. The small businesses, having turnover below the threshold limit can, however, voluntarily opt to register.

The aggregate turnover includes supplies made by him on behalf of his principals, but excludes the value of job-worked goods if he is a job worker. But persons who are engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax or an agriculturist, to the extent of supply of produce out of cultivation of land are not liable to register under GST.   

Nature of registration

The registration in GST is PAN based and State specific.

Supplier has to register in each of such State or Union territory from where he effects supply. In GST registration, the supplier is allotted a 15-digit GST identification number called “GSTIN”, and a certificate of registration incorporating therein this GSTIN is made available to the applicant on the GSTN common portal. The first 2 digits of the GSTIN is the State code, next 10 digits are the PAN of the legal entity, the next two digits are for entity code, and the last digit is check sum number. Registration under GST is not tax specific, which means that there is single registration for all the taxes i.e. CGST, SGST/UTGST, IGST and cesses.

A given PAN based legal entity would have one GSTIN per State, that means a business entity having its branches in multiple States will have to take separate State wise registration for the branches in different States. But within a State, an entity with different branches would have single registration wherein it can declare one place as principal place of business and other branches as additional place of business. However, a business entity having separate business verticals (as defined in section 2 (18) of the CGST Act, 2017) in a state may obtain separate registration for each of its business verticals. Generally, the liability to register under GST arises when you are a supplier within the meaning of the term, and also your aggregate turn over in the financial year is above the exemption threshold of 20 lakh rupees. However, the GST law enlists certain categories of suppliers who are required to get compulsory registration irrespective of their turnover that is to say, the threshold exemption of 20 lakh is not available to them. Some of such suppliers who need to register compulsorily irrespective of the size of their turnover are:

Inter-state suppliers

A person receiving supplies on which tax is payable by recipient on reverse charge basis

Casual taxable person who is not having fixed place of business in the State or Union Territory from where he wants to make supply

Non-resident taxable persons who are not having fixed place of business in India

A person who supplies on behalf of some other taxable person (i.e. an Agent of some Principal)

E-commerce operators, who provide platform to the suppliers to supply through it

Suppliers who supply through an e-commerce operator

Those ecommerce operators who are notified as liable for

GST payment under Section 9(5)

TDS Deductor

Those supplying online information and data base access or retrieval services from outside India to a non-registered person in India.

A Casual taxable person is one who has a registered business in some State in India, but wants to effect supplies from some other State in which he is not having any fixed place of business. Such person needs to register in the State from where he seeks to supply as a Casual taxable person. A Non-Resident taxable person is one who is a foreigner and occasionally wants to effect taxable supplies from any State in India, and for that he needs GST registration. GST law prescribes special procedure for registration, as also for extension of the operation period of such Casual or Non-Resident taxable persons. They have to apply for registration at least five days in advance before making any supply. Also, registration is granted to them or period of operation is extended only after they make advance deposit of the estimated tax liability.

In respect of supplies to some notified agencies of United Nations organisation, multinational financial institutions and other organisations, a unique identification number (UIN) is issued.

Standardisation of procedures

A total of 30 forms/formats have been prescribed in the GST registration rules. For every process in the registration chain such as application for registration, acknowledgment, query, rejection, registration certificate, show cause notice for cancellation, reply, cancellation, amendment, field visit report etc, there are standard formats. This will make the process uniform all over the country. The decision making process will also be fast. Strict time lines have been stipulated for completion of different stages of registration process.

An application has to be submitted online through the common portal (GSTN) within thirty days from the date when liability to register arose. The Casual and Non-Resident taxable persons need to apply at least five days prior to the commencement of the business. For transferee of a business as going concern, the liability to register arises on the date of transfer.

The Proper Officer has to either raise a query or approve the grant of registration within three working days failing which, registration would be considered as deemed to have been approved. The applicant would have to respond within seven working days starting from the fourth day of filing the original application. The Proper Officer would have to grant or reject the application for registration within seven working days thereafter.

Amendment of registration

Except for the changes in some core information in the registration application, a taxable person shall be able to make amendments without requiring any specific approval from the tax authority. In case the change is for legal name of the business, or the State of place of business or additional place of business, the taxable person will apply for amendment within 15 days of the event necessitating the change. The Proper Officer, then, will approve the amendment within the next 15 days. For other changes like the name of day-to-day functionaries, e-mail IDs, mobile numbers etc. no approval of the Proper Officer is required, and the amendment can be affected by the taxable person on his own on the common portal.

Cancellation of registration

The GST law provides for two scenarios where cancellation of registration can take place; the one when the taxable person no more requires it (voluntary cancellation), and another when the Proper Officer considers the registration liable for cancellation in view of certain specified defaults (Suo-motu cancellation) like when the registrant is not doing business from the registered place of business or if he issues tax invoice without making the supply of goods or services. The taxable person desirous of cancellation of registration will apply on the common portal within 30 days of the event warranting cancellation. He will also declare in the application, the stock held on the date with effect from which he seeks cancellation. He will also work out and declare the quantum of dues of payments and credit reversal, and the particulars of payments made towards discharge of such liabilities. In case of voluntary registration (taken despite not being liable for), no cancellation is allowed until expiry of one year from the effective date of registration. If satisfied, the Proper Officer has to cancel the registration within 30 days from the date of application or the date of reply to notice (if issued, when rejection is concluded by the officer).
Revocation of cancellation
In case where registration is cancelled suo-motu by the Proper Officer, the taxable person can apply within 30 days of service of cancellation order, requesting the officer for revoking the cancellation ordered by him. However, before applying, the person has to make good the defaults (by filing all pending returns, making payment of all dues and so) for which the registration was cancelled by the officer. If satisfied, the proper officer will revoke the cancellation earlier ordered by him. However, if the officer concludes to reject the request for revocation of cancellation, he will first observe the principle of natural justice by way of issuing notice to the person and hearing him on the issue.
Physical verification for registration
Physical verification is to be resorted to only where it is found necessary in the subjective satisfaction of the proper officer.
If at all, it is felt necessary, it will be undertaken only after granting the registration, and the verification report along with the supporting documents and photographs, shall have to be uploaded on the common portal within fifteen working days.

E-RETURNS IN GST

The basic features of the returns mechanism in GST include electronic filing of returns, uploading of invoice level information and auto-population of information relating to Input Tax Credit (ITC) from returns of supplier to that of recipient, invoice-level information matching and auto-reversal of Input Tax Credit in case of mismatch. The returns mechanism is designed to assist the taxpayer to file returns and avail ITC.

Under GST, a regular taxpayer needs to furnish monthly returns and one annual return. There are separate returns for a taxpayer registered under the composition scheme, non-resident taxpayer, taxpayer registered as an Input Service Distributor, a person liable to deduct or collect the tax (TDS/ TCS) and a person granted Unique Identification Number. It is important to note that a taxpayer is NOT required to file all types of returns. In fact, taxpayers are required to file returns depending on the activities they undertake.

All the returns are to be filed online. Returns can be filed using any of the following methods:

GSTN portal (www.gst.gov.in )

Offline utilities provided by GSTN

GST Suvidha Providers (GSPs) - If you are already using the services of ERP providers such as Tally, SAP, Oracle etc., there is a high likelihood that these ERP providers would provide inbuilt solutions in the existing ERP systems

Following table lists the various types of returns under GST Law:

Return	Description	Who Files?	Date for filing
GSTR-1	Monthly Statement of	Registered Person	10th of the next month
	Outward supplies of
	Goods or Services
GSTR-2	Monthly Statement of	Registered Person	15th of the next month
	Inward supplies of
	Goods or Services
GSTR-3	Monthly Return for a	Registered Person	20th of the next month
	normal taxpayer
GSTR-4	Quarterly Return	Taxable Person opting for	18th of the month
		Composition Levy	succeeding the quarter
GSTR-5	Monthly Return for a	Non-resident Taxpayer	20th of the month
	non-resident taxpayer		succeeding the tax period
			& within 7 days after
			expiry of registration
GSTR-6	Monthly Return for an	Input Service Distributor	13th of the next month
	Input Service
	Distributor (ISD)
GSTR-7	Monthly Return for	Tax Deductor	10th of the next month
	authorities deducting
	tax at source
GSTR-8	Monthly Statement for	E-Commerce Operator	10th of the next month
	E-Commerce Operator
	depicting supplies
	effecting through it
GSTR-9	Annual Return	Registered Person other	31st December of next
		than an ISD, TDS/TCS	Financial Year
		Taxpayer, Casual Taxable
		Person and Non-resident
		Taxpayer
GSTR-10	Final Return	Taxable Person whose	Within three months of
		registration has been	the date of cancellation
		surrendered or cancelled	or date of order of
			cancellation, whichever
			is later.

 

Filing Process

A normal taxpayer has to file the following returns:

GSTR-1 (Statement of Outward Supplies):

a.    This return signifies the tax liability of the supplier for the supplies effected during the previous month.

b.    It needs to be filled by the 10^th of every month in relation to supplies effected during the previous month. For example, a statement of all the outward supplies made during the month of July 2017 needs to be filed by 10^th August, 2017.

GSTR-2 (Statement of Inward Supplies):

a.    This return signifies accrual of ITC (Input Tax Credit) from the inputs received during the previous month.

b.    It is auto-populated from the GSTR-1s filed by the corresponding suppliers of the Taxpayer except for a few fields like imports, and purchases from unregistered suppliers.

c.    It needs to be filed by the 15^th of every month in relation to supplies received during the previous month. For example, a statement of all the inward supplies received during the month of July 2017 needs to be filed by 15^th August, 2017.

GSTR-3: This is a consolidated return. It needs to be filed by the 20^th of every month. It consolidates the following details

a. Outward Supplies (Auto-Populated from GSTR-1)

b. Inward Supplies (Auto-Populated from GSTR-2)

c. ITC availed

d. Tax Payable

e. Tax Paid (Using both Cash and ITC)

NOTE: Payment should be made on or before 20th of every month.

Annual Return

This return needs to be filed by 31st December of the next Financial Year. In this return, the taxpayer needs to furnish details of expenditure and details of income for the entire Financial Year.

The population of these returns is explained by the following graphic:

Supplier 1	Supplier 2	Supplier 3	Supplier 4
GSTR-1	GSTR-1	GSTR-1	GSTR-1

 

Taxpayer	Taxpayer
GSTR1	GSTR2
(Signifies Tax Liability)	(Signifies ITC Availability)

 Taxpayer

GSTR3

(Cash to be paid = Tax Liability - ITC Available)

NOTE:

Taxpayer’s GSTR-2 is auto-populated from the Suppliers’ GSTR-1s

Taxpayer’s GSTR-3 is significantly auto-populated from tax payer’s GSTR-1 and GSTR-2

Return Filing Milestones:
• File via GSTN/Easy upload tools provided

GSTR-1	by GSTN/GSPs
	• Periodical uploading allowed
	• Filed by 10th
	• Frozen after 10th
GSTR-2	• Auto-populated from GSTR-1s filed by a
	Tax Payer’s Suppliers
	• Changes allowed between 10th and 15th
	• Filed by 15th
	• Occurs between 15th and 17th. Tax Payer
	can add additional invoices.
	• Supplier has the option to accept/reject
	additional invoices. Supplier’s GSTR-1
	gets amended to that effect.
GSTR-3	• Auto-populated from GSTR-1 and GSTR-2
	• Filed by 20th
	• Payment can be made anytime before or
	on 20th

Revision of Returns:
The mechanism of filing revised returns for any correction of errors/ omissions has been done away with. The rectification of errors/ omissions is allowed in the subsequent returns. However, no rectification is allowed after furnishing the return for the month of September following the end of the financial year to which, such details pertain, or furnishing of the relevant annual return, whichever is earlier.
Penal Provisions Relating to Returns:
Any registered person who fails to furnish form GSTR-1, GSTR-2, GSTR-3 or Final Return within the due dates, shall be liable to pay a late fee of Rs. 100 per day, subject to a maximum of Rs. 5,000.
ITC Matching and Auto-Reversal:
It is a mechanism to prevent revenue leakage.
The process of ITC Matching begins after the due date for filing of the return (20th of every month). This is carried out by GSTN.
The details of every inward supply furnished by the taxable person
(i.e. the “recipient” of goods and/or services) in form GSTR-2 shall be matched with the corresponding details of outward supply furnished by the corresponding taxable person (i.e. the “supplier” of goods and/or services) in his valid return. A return may be considered to be a valid return only when the appropriate GST has been paid in full by the taxable person, as shown in such return for a given tax period.
In case the details match, then the ITC claimed by the recipient in his valid returns shall be considered as finally accepted and such acceptance shall be communicated to the recipient. Failure to file valid return by the supplier may lead to denial of ITC in the hands of the recipient.

In case the ITC claimed by the recipient is in excess of the tax declared by the supplier or where the details of outward supply are not declared by the supplier in his valid returns, the discrepancy shall be communicated to both the supplier and the recipient. Similarly, in case, there is duplication of claim of ITC, the same shall be communicated to the recipient.

The recipient will be asked to rectify the discrepancy of excess claim of ITC and in case the supplier has not rectified the discrepancy communicated in his valid returns for the month in which, the discrepancy is communicated, then such excess ITC as claimed by the recipient shall be added to the output tax liability of the recipient in the succeeding month.
Similarly, duplication of ITC claimed by the recipient shall be added to the output tax liability of the recipient in the month in which, such duplication is communicated.
The recipient shall be liable to pay interest on the excess or duplicate ITC added back to the output tax liability of the recipient from the date of availing of ITC till the corresponding additions are made in their returns.
Re-claim of ITC refers to taking back the ITC reversed in the
Electronic Credit Ledger of the recipient by way of reducing the output tax liability. Such re-claim can be made by the recipient only in case the supplier declares the details of the Invoice and/or Debit Notes in his valid return within the prescribed timeframe. In such case, the interest paid by the recipient shall be refunded to him by way of crediting the amount to his Electronic Cash Ledger.