Can a service not mentioned in the contract still be considered as service of pure agent?

When a service is provided by the pure agent where the same is not mentioned in the contract, can the still be considered as service of pure agent?

As per the Rule 33 of the CGST Rules, 2017, Value of supply of services in case of pure agent –

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, –

• the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;
• 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; and
• 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.

Explanation. – For the purposes of this rule, the expression “pure agent” means a person who –

1. 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;
2. neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
3. does not use for his own interest such goods or services so procured; and
4. receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

The Authority for Advance Ruling in Karnataka recently passed a ruling(Advance Ruling No. KAR ADRG 39/2022, date 27.10.2022) dealing with the similar case.

The applicant has sought advance ruling in respect of applicability of GST for reimbursement of tree cut compensation and land compensation amount paid to farmers and land owners during the course of execution of work.

In the mentioned case, there was an agreement b/w the parties wherein there where the special conditions which clearly specifies tree cutting and tree cut compensation, crop compensation, electrical inspectorate charges paid by the contractor shall be reimbursed by the owner. However, the contract nowhere specifies regarding reimbursement of the land compensation paid.

Therefore, reimbursement of tree cut compensation amount paid to farmers and land owners qualifies as service provided by a Pure Agent and won’t be chargeable to GST because it has satisfied all the conditions of Rule 33 of the CGST Rules, 2017 applicable for a pure agent. However, for reimbursement of land compensation paid to farmers and land ownersduring the course of execution of the contract does not qualified as service of pure agent as there was no contractual arrangement for the same b/w the parties, thus not qualifying condition(i) to the Rule 33 of CGST Rules, 2017, hence chargeable to GST.