GST on transactions between Principal and his Agent for supply of goods


Schedule-I of CGST Act 2017 specifies certain Activities which shall be treated as supply even if made without consideration. Entry no. 3 of this schedule specifies transactions of supply of goods between principal and his agent and are reproduced below:-

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

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


In GST laws, supply of goods by principal to his agent or by agent to his principal shall be liable to tax even if these transactions does not contain any consideration for such supplies.

Section 7 of CGST Act 2017 defines scope of Supply under GST. As per clause (a) of sub-section (1), supply includes all forms of supply of goods or services or both made for a consideration in the course or furtherance of business.

However, Schedule-I considers supply of goods between principal and his agent as supply for levy of GST even if made without consideration. It is worth noting here that 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.

In this article, we will discuss the principal-agent relationship in case of supply of goods only.

How to determine/identify whether a person is an agent or not.

In this regard, CBIC has issued a circular CIR-57/31/2018-GST on 4th September 2018 which clarify the factors which helps in such identification. CBIC has clarified that 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. Following is the detailed discussion on such conclusion.

Section 2(5) of CGST Act 2017 defines the term ‘Agent’ 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;

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.

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.

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 entry under Schedule-I.

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 of Schedule I of the CGST Act.

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. Thus an activity would be called as supply even if made without consideration (i.e. would fall in Schedule-I) when the so called ‘agent’ raises his own invoice at the time of sale on behalf of principal or receives invoice in his own name from vendors for purchase on behalf of his principal.

Followings are some practical scenarios and  the conclusion:-

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.


When do an agent required registration under GST Act ?

Where a person falls under the category of ‘agent’ for the purposes of Schedule-I of CGST Act, he is required to get registered from the very first transaction of purchase or sale on behalf of his principal.

However, if such person is not covered under above-said category, he would be liable for registration if his aggregate turnover exceeds the threshold specified in sub-section (1) of section 22 of the CGST Act. {Refer >> When do I need to get registration under GST in India}


What would be taxable value where supply falls under Schedule-I [i.e. made without consideration]

Rule 29 of CGST Rules provides for method to compute Value of supply of goods made or received through an agent.

Where the supply of goods is intended for further supply by the recipient of goods, it is at the option of supplier to calculate value of supply on the basis of one out of followings:-

(i) the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person; or

(ii) the open market value of the goods being supplied.

Illustration: A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of five thousand rupees per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of four thousand five hundred and fifty rupees per quintal. The value of the supply made by the principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option, the value shall be 90 per cent. of five thousand rupees i.e., four thousand five hundred rupees per quintal.

However, where the value of a supply is not determinable as per above, the same shall be determined by the application of rule 30 or rule 31 of CGST Rules in that order.

As per Rule 30, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.

And, Rule 31 is the residual method of valuation where the value shall be determined using reasonable means consistent with the principles and the general provisions of section 15 of CGST Act.


Is there any separate set of books required to maintain by an agent ?

Every agent, in addition to the normal set of accounts , shall maintain accounts depicting the:-

  • particulars of authorisation received by him from each principal to receive or supply goods or services on behalf of such principal separately;
  • particulars including description, value and quantity (wherever applicable) of goods or services received on behalf of every principal;
  • particulars including description, value and quantity (wherever applicable) of goods or services supplied on behalf of every principal;
  • details of accounts furnished to every principal; and
  • tax paid on receipts or on supply of goods or services effected on behalf of every principal.

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