Circular Article or Description of Principal Agent Relationship i.e Circular 57/31/2018-GST, CBEC-20/16/4/2018-GST as extended by Circular 73/47/2018-GST, F No 20/16/04/2018-GST, Meaning of Del Credere Agent and GST Applicability on the Concept of Del Credere Agent
Financial Year: 2018
What is the meaning of Principal Agent Relationship
Two Circulars has been issued for principal agent relationship description
(a) Circular 57/31/2018-GST, CBEC-20/16/4/2018-GST
Please download from following PDF Image
(b) Circular 73/47/2018-GST, F No 20/16/04/2018-GST
Please download from following PDF Image
Lets Understand the Concept
Agent (Section 2(6) of CGST Act).
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
Principal Section 2(88) of CGST Act.
‘Principal’ means a person
on whose behalf
an agent carries on the business of supply or receipt of goods or services or both
Liability only C&F Agents, not of commission agents –
As per aforesaid clause (a),
the agent will be liable for GST on value of goods or services only if he undertakes to supply any goods or services or both on behalf of any principal (like consignment agent).
However, if the agent does not supply goods or services, he is not liable for GST on value of goods or services. He will be liable for GST only on his commission.
Clause (b) will cover cases where agent returns goods to Principal.
Commission Agent is not required to register if his receipts of commission are less than Rs. 20/10 lakhs per annum – Section 24(1)(vii) of CGST Act.
Persons who supply goods or services or both on behalf of other taxable persons whether as an agent or otherwise require registration under GST even if his turnover is below Rs. 20/10 lakhs per annum.
There was misunderstanding that all commission agents require mandatory registration under GST irrespective of his commission income (i.e. even if income from commission is below 20/10 lakhs per annum).
CBI&C Circular No. 57/31/2018-GST dated 4-9-2018.
Now it has been clarified that such registration is required only by C&F agents who stock and sale goods on behalf of Principal.
Registration is not required by ordinarily commission agents who do not deal in goods or services themselves, if their annual turnover is less than Rs.20/10 lakhs –
In case of commission agent of agriculture produce, the commission agent is not a taxable person and agriculturist is also not a taxable person.
Hence, the commission agent does not require registration under GST.
However, if he is liable to pay GST under reserve charge, he will be liable to be registered under Section 24(iii) of CGST Act.
Position in respect of del credere agent:-
Del credere agent is similar to commission agent.
The only difference is that he guarantees payment to supplier of goods or services, if recipient does not pay.
In some cases, the del credere agent himself pays to supplier and then recovers amount from recipient.
In some case, the del credere agent advances short term loan to buyer and then buyer pays to the supplier.
CBI&C, vide circular No. 73/47/2018-GST dated 5-11-2018,
has clarified that if del credere agent is like ordinary commission agent, there is no impact on GST liability.
However, if the del credere agent (DCA) received the goods and then supplies as per para 3 of schedule I of CGST Act (i.e. he is C&F Agent), the value of interest will be included in the value of supply of goods by DCA to the recipient as per section 15(2)(d) of CGST Act.
Please Note that in this case, there are two separate transactions and tax invoices.
The first transaction is when supplier raises tax invoice on DCA
(who is similar to C&F Agent in this case)
and second is when the DCA(who is similar to C&F Agent in this case) issues tax invoice on buyer.
Please read
of CGST Rules for Understanding the Valuation of GST in case of transaction between Principal and Agent.
Thanks
CA Rahul Gupta