Central Tax Circulars

CGST Circular 73/2018

Circular Number	73/2018
Circular Date	05-11-2018
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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 and agent relationship under Schedule I of
CGST Act, 2017 in the context of del-credere agent – Reg.

1) Post issuance of circular No. 57/31/2018-GST dated 4th September, 2018
from F. No.
CBEC/20/16/4/2018-GST, various representations have been received from the
trade and industry, as well as from the field formations regarding the scope
and ambit of principal agent relationship under GST in the context of
del-credere agent (hereinafter referred to as “DCA”). In order to clarify
these issues and to ensure uniformity of implementation across field
formations, the Board, in exercise of its powers conferred under section 168
(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as
“CGST Act”) hereby clarifies the issues in succeeding paras.

2) In commercial trade parlance, a DCA is a selling agent who is engaged by a
principal
to assist in supply of goods or services by contacting potential buyers on
behalf of the principal. The factor that differentiates a DCA from other agents
is that the DCA guarantees the payment to the supplier. In such scenarios where
the buyer fails to make payment to the principal by the due date, DCA makes the
payment to the principal on behalf of the buyer (effectively providing an
insurance against default by the buyer), and for this reason the commission
paid to the DCA may be relatively higher than that paid to a normal agent. In
order to guarantee timely payment to the supplier, the DCA can resort to
various methods including extending short-term transaction-based loans to the
buyer or paying the supplier himself and recovering the amount from the buyer
with some interest at a later date. This loan is to be repaid by the buyer
along with an interest to the DCA at a rate mutually agreed between DCA and
buyer. Concerns have been expressed regarding the valuation of supplies from
Principal to recipient where the payment for such supply is being discharged by
the recipient through the loan provided by DCA or by the DCA himself. Issues
arising out of such loan arrangement have been examined and the clarifications
on the same are as below:

Sl.No.	Issue	Clarification
1	Whether a DCA falls under the ambit of agent under Para 3 of Schedule I of the CGST Act?	As already clarified vide circular No. 57/31/2018-GST dated 4th September, 2018, whether or not the DCA will fall under the ambit of agent under Para 3 of Schedule I of the CGST Act depends on the following possible scenarios: In case where the invoice for supply of goods is issued by the supplier to the customer, either himself or through DCA, the DCA does not fall under the ambit of agent. In case where the invoice for supply of goods is issued by the DCA in his own name, the DCA would fall under the ambit of agent.
2	Whether the temporary short-term transaction based loan extended by the DCA to the recipient (buyer), for which interest is charged by the DCA, is to be included in the value of goods being supplied by the supplier (principal) where DCA is not an agent under Para 3 of Schedule I of the CGST Act?	In such a scenario following activities are taking place: Supply of goods from supplier (principal) to recipient; Supply of agency services from DCA to the supplier or the recipient or both; Supply of extension of loan services by the DCA to the recipient. It is clarified that in cases where the DCA is not an agent under Para 3 of Schedule I of the CGST Act, the temporary short-term transaction based loan being provided by DCA to the buyer is a supply of service by the DCA to the recipient on Principal to Principal basis and is an independent supply. Therefore, the interest being charged by the DCA would not form part of the value of supply of goods supplied (to the buyer) by the supplier. It may be noted that vide notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017 (S. No. 27), services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) has been exempted.
3	Where DCA is an agent under Para 3 of Schedule I of the CGST Act and makes payment to the principal on behalf of the buyer and charges interest to the buyer for delayed payment along with the value of goods being supplied, whether the interest will form a part of the value of supply of goods also or not?	In such a scenario following activities are taking place: Supply of goods by the supplier (principal) to the DCA; Further supply of goods by the DCA to the recipient; Supply of agency services by the DCA to the supplier or the recipient or both; Extension of credit by the DCA to the recipient. It is clarified that in cases where the DCA is an agent under Para 3 of Schedule I of the CGST Act, the temporary short-term transaction based credit being provided by DCA to the buyer no longer retains its character of an independent supply and is subsumed in the supply of the goods by the DCA to the recipient. It is emphasised that the activity of extension of credit by the DCA to the recipient would not be considered as a separate supply as it is in the context of the supply of goods made by the DCA to the recipient. It is further clarified that the value of the interest charged for such credit would be required to be included in the value of supply of goods by DCA to the recipient as per clause (d) of sub-section (2) of section 15 of the CGST Act.

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

4) Difficulty, if any, in implementation of the above instructions may please
be brought
to the notice of the Board. Hindi version would follow.