Liability of GST on Principal and Agent
Agent of the principal is one who carries on the business of supply or receipt of goods or services or both on behalf of another person, being the principal. The agent functions as an extended arm of the principal and therefore, supplies (inward and outward) effected by an agent on behalf of the principal will be treated as supplies effected by the principal.
Who is Principal?
As per Sec 2(88) of CGST Act, 2017 “principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
Who is Agent?
As per Sec 2(5) of CGST Act,2017 “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.
Taxability under GST
Schedule I of CGST Act, 2017 specify that supply of goods made by principal to his agent and vice versa will be treated as supply even if it is made without consideration.
Where an Agent receives goods directly from the Principal, or if the Principal’s vendor directly dispatches goods to the location of the agent, the Principal shall be required to treat the movement as an outward supply of goods. If understood in its proper perspective, when an agent receives goods on behalf of the Principal and thereafter issues the goods to the Principal, the transaction will be regarded as a supply by the Agent to the Principal.
- An important question that may arise is – as to how the transaction would appear to the ultimate recipient of a supply, when effected by the Principal through the Agent, or to the supplier who effects the supply to the Principal through an Agent. An analysis of the transaction where the Principal effects a supply through an Agent is provided as follow
- The Principal shall recognise the transfer of goods to the Agent as a supply, at the time of such transfer.
- When the Agent supplies such goods to the third-party recipient, the Principal would recognise revenue as a supply (sale) in his books of account.
- The Agent would, however, issue the invoice to the third-party recipient in the name of the Principal, while also incorporating the Agent’s own details as the supplier, and discharge taxes on the supply.
- The third-party recipient would receive the credits on account of this supply from the GSTIN of the Agent and not the Principal.
- To this extent, the Principal’s supplies in the GST returns will reflect a lower value as compared to the actual revenue against the supplies, since the value of supply to an Agent would normally, be lower than the actual sale price.
- The value of supplies in the GST returns of the Agent would be much higher than the actual revenues earned, which would be limited to the commission income.
- It is pertinent to note that the Agent shall be required to issue an invoice on the Principal for the value of service provided by him to earn his commission income but without GST as tax has already been levied on commission in the form of selling price of the goods.
- Services supplied by Direct Selling Agents (Other than Body Corporate, Partnership or LLP) to Bank or NBFC shall be covered under Reverse Charge.
Recommended Read: Issues under GST regarding Principal and Agent
Author is this article is CA Arti Agarwal, she is a practicing Chartered Accountant and a prominent author of efilingworld.
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