Issues under GST regarding Principal- Agent Relationship
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. So for understanding the above provision of GST first we will understand the criteria as per which transactions between principal and agent will be treated as supply under GST.
In this article we will discuss some crucial issues regarding Principal-Agent relationship in the ambit of GST.
Points to be discussed in this article:
- Definition of Agent as per Indian Contract Act,1872
- Definition of Agent as per CGST Act,2017
- Scope of Principal Agent Relationship under GST
- Issues regarding Principal-Agent Relationship under GST
Definition of Agent as per Indian Contract Act,1872
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.
Definition of Agent as per CGST Act,2017
And as per Section 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.
Recommended Read: Liability of GST on Principal and Agent
Hence, the key ingredient for determining principal-agent relationship under GST would be whether the invoice for the supply of goods to customer on behalf of the principal is being issued by the agent or not. Where the invoice for the supply of goods to customer is being issued by the agent in his name then, any transfer of goods from the principal to the agent would fall within the fold of the GST Act and will be treated as supply. 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 and accordingly will not be treated as supply.
Similarly, where the goods being procured by the agent on behalf of the principal are invoiced in the name of the agent then any further transfer of goods from the agent to the principal would fall within the fold of the GST Act and will be treated as supply. 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.
Issues regarding Principal-Agent Relationship under GST
Mr. P appoints Mr. Q to procure certain goods from the market. Mr. Q identifies various suppliers who can provide the goods as desired by Mr. P, and asks the supplier (Mr. R) to send the goods and issue the invoice directly to Mr. P. In this scenario, Mr. Q 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.Q is not an agent of Mr. P for supply of goods in the ambit of GST.
M/s ABC, 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 ABC. The invoice for the supply of the goods is issued by M/s ABC 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 ABC for the supply of goods in the ambit of GST.
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.
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.
Recommended Read: Whether Commission Agent needs to take GST Registration?
Author is this article is CA Arti Agarwal, she is a practicing Chartered Accountant and a prominent author of efilingworld.
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