Central Tax Circulars

CGST Circular 57/2018

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal
Commissioners/ Commissioners of Central Tax (All) / The Principal
Directors General/ Directors General (All)

Madam/Sir,

Subject: Scope of Principal-agent relationship in the context of Schedule
I of the CGST Act – regarding.

1) In terms of Schedule I of the Central Goods and Services Tax Act, 2017
(hereinafter referred to as the “CGST Act”), the supply of goods by an
agent on behalf of the principal without consideration has been deemed to
be a supply. In this connection, various representations have been
received regarding the scope and ambit of the principal-agent
relationship under GST. In order to clarify some of the issues and to
ensure uniformity in the implementation of the provisions of the law
across the field formations, the Board, in exercise of its powers
conferred under section 168 (1) of the CGST Act hereby clarifies the
issues in the succeeding paras.

2) As per section 182 of the Indian Contract Act, 1872, an “agent” is a
person employed to do any act for another, or to represent another in
dealings with third person. The person for whom such act is done, or who
is so represented, is called the “principal”. As delineated in the
definition, an agent can be appointed for performing any act on behalf of
the principal which may or may not have the potential for representation
on behalf of the principal. So, the crucial element here is the
representative character of the agent which enables him to carry out
activities on behalf of the principal.

3) The term “agent” has been defined under sub-section (5) of section 2
of the CGST Act as follows:

“agent” means 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.

4) The following two key elements emerge from the above definition of
agent:

a) the term „agent‟ is defined in terms of the various activities being
carried out by the person concerned in the principal-agent relationship;
and

b) the supply or receipt of goods or services has to be undertaken by the
agent on behalf of the principal.

From this, it can be deduced that the crucial component for covering a
person within the ambit of the term “agent” under the CGST Act is
corresponding to the representative character identified in the
definition of “agent” under the Indian Contract Act, 1872.

5) Further, the two limbs of any supply under GST are “consideration” and
“in the course or furtherance of business”. Where the consideration is
not extant in a transaction, such a transaction does not fall within the
ambit of supply. But, in certain scenarios, as elucidated in Schedule I
of the CGST Act, the key element of consideration is not required to be
present for treating certain activities as supply. One such activity
which has been detailed in para 3 of Schedule I (hereinafter referred to
as “the said entry”) is reproduced hereunder:

3. Supply of goods—

(a) by a principal to his agent where the agent undertakes to supply such
goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive
such goods on behalf of the principal.

6) Here also, it is worth noticing that all the activities between the
principal and the agent and vice versa do not fall within the scope of
the said entry. Firstly, the supply of services between the principal and
the agent and vice versa is outside the ambit of the said entry, and
would therefore require “consideration” to consider it as supply and
thus, be liable to GST. Secondly, the element identified in the
definition of “agent”, i.e., “supply or receipt of goods on behalf of the
principal” has been retained in this entry.

7) It may be noted that the crucial factor is how to determine whether
the agent is wearing the representative hat and is supplying or
receiving goods on behalf of the principal. Since in the commercial
world, there are various factors that might influence this relationship,
it would be more prudent that an objective criteria is used to determine
whether a particular principal-agent relationship falls within the ambit
of the said entry or not. Thus, the key ingredient for determining
relationship under GST would be whether the invoice for the further
supply of goods on behalf of the principal is being issued by the agent
or not. Where the invoice for further supply is being issued by the agent
in his name then, any provision of goods from the principal to the agent
would fall within the fold of the said entry. However, it may be noted
that in cases where the invoice is issued by the agent to the customer in
the name of the principal, such agent shall not fall within the ambit of
Schedule I of the CGST Act. Similarly, where the goods being procured by
the agent on behalf of the principal are invoiced in the name of the
agent then further provision of the said goods by the agent to the
principal would be covered by the said entry. In other words, the crucial
point is whether or not the agent has the authority to pass or receive
the title of the goods on behalf of the principal.

8) Looking at the convergence point between the character of the agent
under both the CGST Act and the Indian Contract Act, 1872, the
following scenarios are discussed:

Scenario 1

Mr. A appoints Mr. B to procure certain goods from the market. Mr. B
identifies various suppliers who can provide the goods as desired by Mr.
A, and asks the supplier (Mr. C) to send the goods and issue the invoice
directly to Mr. A. In this scenario, Mr. B is only acting as the
procurement agent, and has in no way involved himself in the supply or
receipt of the goods. Hence, in accordance with the provisions of this
Act, Mr.B is not an agent of Mr. A for supply of goods in terms of
Schedule I.

Scenario 2

M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction
certain goods. The auctioneer arranges for the auction and identifies the
potential bidders. The highest bid is accepted and the goods are sold to
the highest bidder by M/s XYZ. The invoice for the supply of the goods is
issued by M/s XYZ to the successful bidder. In this scenario, the
auctioneer is merely providing the auctioneering services with no role
played in the supply of the goods. Even in this scenario, Mr.B is not an
agent of M/s XYZ for the supply of goods in terms of Schedule I.

Scenario 3

Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting.
M/s B arranges for the auction and identifies the potential bidders. The
highest bid is accepted and the painting is sold to the highest bidder.
The invoice for the supply of the painting is issued by M/s B on the
behalf of Mr. A but in his own name and the painting is delivered to the
successful bidder. In this scenario, M/s B is not merely providing
auctioneering services, but is also supplying the painting on behalf of
Mr. A to the bidder, and has the authority to transfer the title of the
painting on behalf of Mr. A. This scenario is covered under Schedule I.

A similar situation can exist in case of supply of goods as well where
the C&F agent or commission agent takes possession of the goods from the
principal and issues the invoice in his own name. In such cases, the
C&F/commission agent is an agent of the principal for the supply of goods
in terms of Schedule I. The disclosure or non-disclosure of the name of
the principal is immaterial in such situations.

Scenario 4

Mr A sells agricultural produce by utilizing the services of Mr B who is
a commission agent as per the Agricultural Produce Marketing Committee
Act (APMC Act) of the State. Mr B identifies the buyers and sells the
agricultural produce on behalf of Mr. A for which he charges a commission
from Mr. A. As per the APMC Act, the commission agent is a person who
buys or sells the agricultural produce on behalf of his principal, or
facilitates buying and selling of agricultural produce on behalf of his
principal and receives, by way of remuneration, a commission or
percentage upon the amount involved in such transaction.

In cases where the invoice is issued by Mr. B to the buyer, the former is
an agent covered under Schedule I. However, in cases where the invoice is
issued directly by Mr. A to the buyer, the commission agent (Mr. B)
doesn‟t fall under the category of agent covered under Schedule I.

9) In scenario 1 and scenario 2, Mr. B shall not be liable to obtain
registration in terms of clause (vii) of section 24 of the CGST Act.
He, however, would be liable for registration if his aggregate turnover
of supply of taxable services exceeds the threshold specified in
sub-section (1) of section 22 of the CGST Act. In scenario 3, M/s B shall
be liable for compulsory registration in terms of the clause (vii) of
section 24 of the CGST Act. In respect of commission agents in Scenario
4, notification No. 12/2017 Central Tax (Rate) dated 24.06.2017 has
exempted “services by any APMC or board or services provided by the
commission agents for sale or purchase of agricultural produce” from GST.
Thus, the „services‟ provided by the commission agent for sale or
purchase of agricultural produce is exempted. Such commission agents
(even when they qualify as agent under Schedule I) are not liable to be
registered according to sub-clause (a) of sub-section (1) of section 23
of the CGST Act, if the supply of the agricultural produce, and /or other
goods or services supplied by them are not liable to tax or wholly exempt
under GST. However, in cases where the supply of agricultural produce is
not exempted and liable to tax, such commission agent shall be liable for
compulsory registration under sub-section (vii) of section 24 of the CGST
Act.

10) It is requested that suitable trade notices may be issued to
publicize the contents of this Circular.

11) Difficulty, if any, in implementation of this Circular may please be
brought to the notice of the Board. Hindi version would follow.