Scope of Principal agent relationship in the context of Schedule I of the CGST Act

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Scope of Principal agent relationship as per GST Act

Scope of Principal agent relationship in the context of Schedule I of the CGST Act : Before discussing this first we need to discuss the definition of supply. Supply is defined in Sec 7 of CGST Act Supply includes all forms of supply of goods or services or both such as sales, transfer, barter, exchange, license, rental, lease or disposal by a person for consideration in the course or furtherance of business.

In  terms  of Schedule  I of the CGST  2017 the supply of  goods by an agent on  behalf of the principal  without consideration has been deemed to be a supply (Sec 7(1)(c))

Further, the two limbs of any supply under  GST are “consideration”  and  “in  the course  or furtherance  of business”.  Where the consideration is not extant in a transaction, such a transaction does not fall within the ambit of supply. But, in certain scenarios, as elucidated in Schedule I of the CGST Act, the key element of consideration  is not required to be present for treating certain activities as supply. One such activity which has been detailed in para 3 of Schedule I (hereinafter  referred to as “the said entry”) is reproduced hereunder:

Supply of goods—                                        

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

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

Note : The supply of services between agent and principal is outside the ambit of above entry and  would therefore require “consideration” to consider it as supply and thus, be liable to GST.

Before going to provisions we need to see the definition of agent

  • The term “agent” has been defined under sub-section (5) of section 2 of the CGST  Act 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

 

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.

Registration provisions:

As per sec 24(vii) persons who makes taxable supply of goods or services or both on behalf of other taxable persons whether as a agent or otherwise

Aggregate turnover includes own supplies or made on behalf of all principals.

Eg. Mohini enterprises has appointed ABC as its agent.All the supply of goods made by ABC as a agent of mohini enterprises will also be included in aggregate turnover of ABC.

CBIC has clarified by way of  Circular No. 57/31/2018-GST Scope  of Principal-agent relationship in  the context of Schedule I of the CGST  Act

In that given four scenarios explaining which is given as follows.

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 said entry. 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.

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.                                 

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.

From the above scenarios we can conclude that in case

Scenario 1 and Scenario 2

Mr.B is not liable to obtain compuslory registration u/s sec 24(vii) of CGST Act provided his aggregate turnover does not exceed 20 lakhs u/s sec22(1) of CGST Act.

In case of Scenario 3

MR.B is liable to obtain compulsory registration u/s 24 of CGST Act.

In case of Scenario 4

In respect of commission agents it has been exempted by notification no 12/2017 dated 28-06-2017 under entry no 54

Services provided by APMC or Board or services provided by commission agent for sale or purchase of agricultural produce

Such commission agent is not liable to obtain registration under Sec 23 of CGST Act 2017 (Even though they qualify as agents under schedule I)

Sec 23 says persons engaged exclusively in goods/services wholly exempt from tax is not liable to obtain registration

Thanks and Regards

G.Krishna Reddy

CA-FINAL STUDENT

7893697767

 

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