Reimbursing an expense does not automatically remove it from GST. The key question is whether the supplier merely paid a third party on the recipient's behalf as a pure agent, or whether the expense was part of the supplier's own service. Rule 33 of the CGST Rules provides a narrow valuation exclusion for genuine pure-agent payments. If the conditions are not met, simply showing an amount as “reimbursement” on the invoice does not by itself keep that amount outside the taxable value.
The starting point is section 15 of the CGST Act on value of taxable supply. It uses transaction value as the normal base and also brings specified amounts and incidental expenses into the value. Rule 33 then creates a specific exception for expenditure or costs incurred by a supplier in the capacity of a pure agent.
What a pure agent is really doing
A pure agent is not simply a supplier who pays an expense first and recovers it later. The supplier must be acting for the recipient in relation to that particular third-party payment.
The official CGST Rules text containing Rule 33 says the supplier must have a contractual arrangement to act as the recipient's pure agent, must not hold or intend to hold title to the goods or services procured in that capacity, must not use them for its own interest, and must recover only the actual amount incurred for that procurement.
Rule 33 also requires the pure-agent payment to be made on the recipient's authorisation, to be shown separately in the supplier's invoice, and to relate to a third-party supply that is in addition to the supplier's own supply.
These conditions work together. Meeting only one or two of them is not enough.
Why “reimbursement at actuals” is not enough
The word reimbursement describes how money is recovered; it does not decide the GST valuation. A supplier may incur an expense while performing its own work and later recover the exact amount from the client. That expense can still be part of the supplier's own service.
For example, assume a consultant travels to another city to perform an assignment and the client agrees to reimburse the consultant's hotel bill at actual cost. The consultant used the hotel accommodation for carrying out the assignment. Merely recovering the exact hotel amount and showing it separately does not, by itself, establish that the consultant acted as a pure agent of the client. The Rule 33 test still has to be applied to the facts, including who was liable to the hotel, whose service was procured, whether the consultant used it for its own interest, and whether the contractual arrangement made the consultant a pure agent for that payment.
This is the practical distinction: a cost incurred to perform your own service is different from money paid on the client's behalf for a third-party liability that belongs to the client.
A practical Rule 33 test before excluding a reimbursement
Before removing a recovered amount from taxable value, check the transaction in this order:
- Identify the third-party supply. What exactly did the third party provide, and to whom?
- Identify who is liable to pay. The documents should support that the liability belongs to the recipient, not merely to the supplier who later seeks reimbursement.
- Check the authority. The recipient should have authorised the supplier to make the payment on its behalf.
- Check the pure-agent agreement. The contractual arrangement should support the supplier's role as a pure agent for that expenditure.
- Check title and use. The supplier should neither hold title to the procured item nor use it for its own interest in the pure-agent capacity.
- Check the amount recovered. Only the actual amount paid to the third party should be recovered as the pure-agent amount. A markup, bundled margin or unexplained difference weakens the position.
- Check the invoice presentation. The pure-agent payment should be shown separately from the supplier's own fee or other consideration.
- Keep the two supplies distinct. The third-party supply procured as pure agent must be additional to the supplier's own supply.
If the facts do not support these points, the safer conclusion is not to label the recovery as pure agent merely because the commercial contract calls it reimbursable.
Example: ROC fees paid for a client
Consider a professional firm engaged to complete a company incorporation. The client is liable for the statutory registration and name-approval fees. The client authorises the firm to pay those fees to the Registrar, and the agreement states that the firm will make the payments as the client's pure agent. The firm does not use the statutory approvals for itself and recovers exactly the amount paid, separately from its professional fee.
This closely follows the illustration used in the CGST Rules. Where the Rule 33 conditions are satisfied, the statutory fees recovered as pure-agent disbursements are excluded from the value of the professional firm's own supply. The firm's own professional fee remains part of its taxable value and is dealt with under the GST rules applicable to that service.
The exclusion therefore does not mean that “nothing is taxable”. It means only that the qualifying pass-through amount is not added to the value of the supplier's own service.
Example: airline collection of airport charges
CBIC has also applied the pure-agent principle in a specific operational setting. In Circular No. 115/34/2019-GST, CBIC explained that an airline can act as a pure agent for Passenger Service Fee and User Development Fee collected for airport services when Rule 33 is satisfied. The circular separately treats the airline's collection charges as consideration for the airline's own service.
The example is useful because it shows two amounts moving through the same commercial chain but receiving different treatment. A qualifying pass-through amount can be excluded from one supplier's value, while that supplier's own fee remains taxable according to the normal rules.
Pure agent is different from a principal-agent goods relationship
The word “agent” appears in several GST contexts, but the rules are not interchangeable. Rule 33 is a valuation rule for expenditure incurred as a pure agent. A different issue arises where goods move between a principal and an agent under Schedule I. The distinction is important because the legal test for principal-agent transfers of goods under GST focuses on whether the intermediary supplies or receives goods on the principal's behalf in the manner contemplated by Schedule I.
A business should therefore avoid using the phrase “we are an agent” as a shortcut. First identify which GST rule is being tested: pure-agent valuation, principal-agent deemed supply, intermediary services, or an ordinary taxable service arrangement.
Documents that make the position easier to defend
A pure-agent conclusion should be visible from the transaction file, not created only at return-filing time. Useful evidence can include:
- the engagement letter or contract describing the pure-agent role for the specified payment;
- the recipient's authorisation to make the payment;
- the third-party invoice, challan, receipt or statutory demand showing the nature of the underlying liability;
- proof of the amount actually paid;
- the supplier's invoice showing the recovery separately from its own fee;
- a reconciliation showing that the amount recovered matches the amount paid to the third party; and
- support showing that the supplier did not use the procured item for its own interest in the pure-agent capacity.
The documentation should match the real commercial flow. An agreement that calls every expense a “pure-agent reimbursement” cannot override facts showing that the supplier actually procured and used the service for itself.
How to decide the GST treatment in practice
For every reimbursable line, ask a simple question first: whose expense or liability is this in substance? If it is the supplier's own cost of performing its service, recovery from the client normally remains part of the valuation analysis for that supply. If it is a third-party liability of the recipient and the supplier only pays it in a properly documented pure-agent capacity, Rule 33 may permit the amount to be excluded.
The label on the invoice is therefore the last step, not the first. Begin with the underlying contract, liability and use of the third-party supply. Then test the Rule 33 conditions and invoice presentation. That approach is more reliable than treating every expense recovered at cost as a GST-free reimbursement.
