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GST on Agent

Agent is defined in CGST act as

“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.

For the purpose of applicability of GST rules, an agent can be divided into three categories –

1. Commission Agent

Commission agent receives a commission on the transaction between two or more persons. The transaction is not routed through him. For example – A person is working as an estate broker. He gets a commission of 1% on the sale price of the property. He is considered as a commission agent. Del creder agent is also a commission agent.

2. Carry and Forwarding Agent (C&F)

They also receive a commission but the transaction is routed through him. For example – A FMCG company appoints a C&F agent in Rajasthan. The goods are sent by the company to such C&F agent on issuing an invoice and such agent distributes goods to other retailers by issuing invoices of their own firm’s name.

The agent is a commission agent or C&F agent is determined on the basis of whether or not the agent has the authority to pass or receive the title of the goods on behalf of the principal. If the agent has such right then such agent is a C&F agent. The disclosure or non-disclosure of the name of the principal to the final buyer is immaterial. For example – An artist Mr A gives his painting to Mr B for auction. Mr C is the highest bidder and therefore Mr B issue an invoice to Mr C in his own name. Since Mr B has the authority to transfer rights to another person; he cannot be considered as a commission agent.

3. Pure Agent

We will discuss about pure agent later in this article.

A person can act as commission agent, C&F agent or pure agent with a single principal in different transactions.

GST Rate and Service Code

The rate of GST on commission is 18%. Services of commission agent in wholesale trade fall under 99611. Services of commission agent in retail trade fall under 99621. Services of Clearing and Forwarding Agent (C&F) do not fall under this head.

Registration Requirement

Commission Agent – Commission agent is required to get registered in GST only when the amount of commission exceeds the threshold limit of Rs. 20/10 lakhs.  (Clarified via Circular No. 57/2018 – CGST)

C&F Agent – Section 24(vii) requires that a person who makes a taxable supply of goods or services or both on behalf of other taxable persons as an agent is required to get registered even if turnover is less than the threshold limit.

If a person acts as a commission agent in some transactions while C&F agent in some transactions, aggregate turnover will be calculated as per the mentioned rule.

Schedule I – Regarding Supply of goods without consideration

If goods are transferred by a principal to agent or vice versa with consideration, then it is treated as supply and an invoice is required to be raised for the consideration.

But if the goods are to be transferred without consideration between agent and principal then also it is treated as supply as per Point 3 of Schedule I.

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 Schedule I. 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 in Schedule I. 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.

Value of supply of goods made or received through an agent

Rule 29 of CGST Rules states that when the goods are supplied without consideration and covered under Schedule I then the value shall be the

  • the open market value of the goods being supplied
  • at the option of the supplier, be ninety per cent. of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person

For example – A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies for 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.

Where the value cannot be determined as per rule 29, then it is to be determined as per rule 30. Rule 30 states that value shall be one hundred and ten per cent of the cost of production or manufacture or the cost of acquisition of such goods.

Rule 29 really covers only C&F Agents who store and sell goods on behalf of Principal. This rules does not cover distributor or selling agents who purchase goods from Principal and then sell on their own. Here, their relations are on the Principal to Principal basis.

Pure Agent

A person who makes payment on behalf of another person and takes only reimbursement in relation to that payment is called pure agent. For example – A person hires a chartered accountant to open a private company. The chartered accountant makes payment to MCA for registration fees on the client’s behalf. CA along with his fees also invoices the actual payment made to MCA. Here, the CA worked as a pure agent in respect of payment made to MCA.

GST is not applicable to such reimbursement of amount.

For a transaction to be considered as a pure agent, the following conditions should satisfy

  • The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service.
  • The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
  • The person does not use for his own interest such goods or services so procured.
  • He receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Example – A tour operator gives a package of Rs.  50,000 to Mr A. The tour operator gives a single invoice of Rs. 50,000 to him. The cost of hotels and cab is not shown separately and also tour operator earns a profit on it. Therefore, he is not considered as a pure agent and GST will be applicable on the full amount of Rs. 50,000. In the same example, if the tour operator charges Rs. Ten thousand for a cab (which he has paid to cab owner) and Rs. Forty thousand for other services and show such RS. 10,000 as a separate item in invoice then he is considered as a pure agent. If he pay only Rs. 9,000 to the cab driver and charges Rs. 10,000 then GST is applicable on the whole amount of Rs. 10,000.

Another example is Stamp duty and Security Transaction Tax (STT) collected from the buyer and stock broker pays it acting as a pure agent of the customer. These are not includible in taxable amount for GST.

In GST, ITC is available only if tax invoice contains GSTIN of recipient and the invoice is uploaded. The pure agent has to ensure that invoices of the supplier are in the name of Principal with his GSTN number.

Air Travel Agent

The value of the supply of services in relation to booking of tickets for travel by air provided by an air travel agent shall be deemed to be an amount calculated at the rate of five percent. of the basic fare in the case of domestic bookings, and at the rate of ten per cent. of the basic fare in the case of international bookings of passage for travel by air.

For the purposes of this sub-rule, the expression “basic fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.

Exporter in India paying commission to a foreign commission agent

If an exporter in India pays commission to a foreign commission agent, the place of supply is out of India and hence no GST is payable (and no reverse charge applicable to Indian exporter) – FAQ on GST Chapter 21 Q No. 25 issued by CBI&C on 15-12-2018.

Important Case Law

K.K. Polymers (Prop. Adventage Agency (P.) Ltd.), In re [2018] 100 taxmann.com 17 (AAR – RAJASTHAN) – Applicant was working as del credere agent (DCA) of Principal. The Principal supplier was giving an additional discount to the del credere agent for early payment, which was passed on by a del credere agent (DCA) to the final customer. It was held that such passing on of additional discount is as a pure agent of Principal and no GST is payable. However, any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA is already paying GST.

Maintaining of Accounts and Records

Every agent shall maintain accounts depicting the,-

(a) particulars of authorisation received by him from each principal to receive or supply goods or services on behalf of such principal separately.

(b) particulars including description, value and quantity (wherever applicable) of goods or services received on behalf of every principal.

(c) particulars including description, value and quantity (wherever applicable) of goods or services supplied on behalf of every principal.

(d) details of accounts furnished to every principal.

(e) tax paid on receipts or on supply of goods or services effected on behalf of every principal.

A person having custody of goods in capacity of C&F agent shall maintain true and correct records in respect of goods handled by him on behalf on another person.

About Prateek Agarwal

Prateek Agarwal is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He writes mainly about GST and Finance.

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