CBIC clarifies the scope of principal agent relationship in the context of Schedule-I of the CGST Act
Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 57/2018 dated 4th September, 2018 to clarify the scope of Principal-Agent relationship in context of Schedule I of the CGST Act,2017 with the help of examples.
The Key points of the Circular are:
- The supply of services between the principal and the agent and vice versa is outside the ambit of the Schedule I of the CGST Act, 2017, and would therefore require “consideration” to consider it as supply and thus, be liable to GST.
- The key ingredient used to determine whether a particular principal-agent relationship falls within the ambit of the Schedule I of the CGST Act,2017 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, 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, 2017.
- The various scenarios as highlighted in the Circular have been enumerated below to clarify the relationship between principal agent:
- Scenario I: 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 of the CGST Act, 2017.
- Scenario II: 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 of the CGST Act, 2017.
- Scenario III: 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 of the CGST Act, 2017.
- Scenario IV: 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. In cases where the invoice is issued by Mr. B to the buyer, Mr. B is an agent covered under Schedule I of the CGST Act, 2017. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent (Mr. B) does not fall under the category of agent covered under Schedule I of the CGST Act, 2017.
For further information please refer the attached document.