Agent under the GST Law

Let us discuss the definition of ‘Agent’ in GST. An agent has been defined under sub-section (5) of section 2 of The Central Goods and Services Tax Act, 2017, (herein after referred to as CGST ACT). I reproduce below the said definition for ready reference.

“(5) “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”

It is well construed, inclusive definition. Initially it makes clear that ‘agent means a person, including………..’ and at the end it cautions ‘…………by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.’ So, I feel, one has no escape from the said definition even if he/she uses some different nomenclature and enters in to a business like an agent. Though it is not mentioned in the definition, an agent always works for consideration.

In Integrated Goods and Services Tax Act, 2017 (herein after referred to as IGST Act) the agents are also referred as intermediary as defined under sub-section (13) of section 2 of the IGST Act as under –

 “section 2(13) of IGST Act – Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”

Though The Central Excise Act, 1944 do not define an agent, it has defined broker or commission agent under sub section (aaa) of section 2, as below;

“Section 2(aaa) of CEA, 1944 - ”broker” or “commission agent” means a person who in the ordinary course of business makes contracts for the sale or purchase of excisable goods for others.”

In the statute of Service Tax, The Finance Act, 1994, the ‘business auxiliary Service’ was defined under sub section (19) (vii) of section 65 and for removal of doubts the explanation was provided under the said definition of ‘business auxiliary Service’. In this explanation the Commission agent was defined as below;

“Section65(19) “business auxiliary service” means any service in relation to, —

(vii)…………

Explanation – For the removal of doubts, it is hereby declared that for the purposes of this clause, — (a)”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —

(i)   deals with goods or services or documents of title to such goods or services; or

(ii)  collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

(iv) undertakes any activities relating to such sale or purchase of such goods or services.”

However, this definition was restricted only for the said clause.

Surprisingly, though the Finance Act, 1994 or The Customs Act, 1962, use word ‘agent’ in several sub-sections and sections, both the Acts did not define it.

If compared, all three definitions differ little bit. In the definition of CGST an agent defined as – ‘who carries on the business of supply or receipt of goods or services or both on behalf of another.’ Where as in the Central Excise Act an agent is defined as – ‘who in the ordinary course of business makes contracts for the sale or purchase of excisable goods for others.’ However, Service Tax was more particular in defining commission agent, where there is a specific mention of “consideration” for activities of agent unlike CGST or Central Excise Act. However, that may be the reason to append the Schedule – I to CGST Act with title, ‘Activities to be treated as supply even if made without consideration’ as reproduced below;

 “ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

3. 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.”

However, there is no mention of service in the said schedule.

Though other agents are not impure agents but still there is a concept of pure agent in GST which is explained by the Board vide C.B.E. & C. Flyer No. 26, dated 1-1-2018 and borrowed from Valuation Rules of Service Tax;

 “pure agent” means a person who –

(a)  enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b)  neither intends to hold nor holds any title to the goods or services or both, so procured or provided as pure agent of the recipient of supply;

(c)  does not use for his own interest such goods or services so procured; and

(d)  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.”

Due to constraints of space it is not possible for this article to entre in to the gamut of the pure agent. However, it will be dealt with a separate article.

May be with or without consideration, the CGST Act makes it compulsory for the agents dealing with taxable supply of goods or service to get registration.

“SECTION 24 of CGST. Compulsory registration in certain cases. — Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act, —

(vii) persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise.” 

It is not so easy for agents under GST regime. The agents are made liable to pay tax in section 86 of the CGST Act and also made liable to maintain the required record under Rule 56 of the CGST Rules as mentioned below;

 “SECTION 86 of CGST Act. Liability of agent and principal. — Where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal shall, jointly and severally, be liable to pay the tax payable on such goods under this Act.”

 “RULE 56 of CGST Rules. Maintenance of accounts by registered persons.

(11) Every agent referred to in clause (5) of section 2 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; and

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

In respect of the Direct Selling agents (DSAs) of banking company or a non-banking financial company the liability of payment of GST has been put on the shoulders of a banking company or a non-banking financial company on reverse charge basis or mechanism popularly known as RCM vide Not. No.13/2017 Central Tax (Rate) dt.17.06.2017, as amended by No. No.15/2018 C.T.(Rate) dt.26.07.2018.

Coming to the valuation, one of the most litigated issue, of the goods handled through agent, a specific Rule 29 has been framed in the Central Goods and Services Tax Rules, 2017, which is as below; 

“Rule 29. Value of supply of goods made or received through an agent. — The value of supply of goods between the principal and his agent shall –

(a) be the open market value of the goods being supplied, or 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, where the goods are intended for further supply by the said recipient.

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 off our 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.

(b)where the value of a supply is not determinable under clause (a), the same shall be determined by the application of rule 30 or rule 31 in that order.”

Section 15 of CGST Act defines Value of taxable supply as the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. However, the Sole agent of any businessman or trader or manufacturer is considered as a related person under said section 15 of the CGST Act.

Now let us see meaning of some of the words used in the definition of agent under section 2(5) of the CGST Act.

The word ‘factor’ has dictionary meaning – ‘a fact or situation that influences the result of something or one who acts or transacts business for another such as broker’.

The broker has dictionary meaning – ‘one who acts as an intermediary such as agent who negotiates contracts of purchase and sale’.

 However, as mentioned herein above sub section (aaa) of section 2 of the Central Excise Act, 1944 defines broker. It makes no difference between broker and commission agent.

Coming to the word ‘arhatia’ (also spelled as ‘arahtia”) in the definition of agent in CGST Act, this word must be from Gujarathi or Rajasthani language, I guess, and was unknown to many. When searched for this word on ‘Google’ I find that the Income Tax Department was well aware of this word and described two types of arhatia in its Circular/452 dated 17-03-1986. [Curtsey CA club and Shri Dhirajlal Rambhia, who referred this circular in his answer on 12.06.2018.] I reproduce below the said circular being interesting and better to keep in mind. 

“ (1) A kachha arahtia acts only as an agent of his constituent and never acts as a principal.  A pacca arahtia, on the other hand, is entitled to substitute his own goods towards the contract made for the constituent and buy the constituent’s goods on his personal account and thus he acts as regards his constituent. 

(2) A kachha arahtia brings a privity contract between his constituent and the third party so that each becomes liable to the other.  The pacca arahtia, on the other hand, makes himself liable upon the contract not only to the third party but also to his constituent. 

(3) Though the kachha arahtia does not communicate the name of his constituent to the third party, he does communicate the name of the third party to the constituent.  In other words, he is an agent for an unnamed principal.  The pacca arahtia, on the other hand, does not inform his constituent as to the third party with whom he has entered into a contract on his behalf. 

(4) The remuneration of a kachha arahtia consists solely of commission and he is not interested in the profits and losses made by his constituent as is not the case with the pacca arahtia. 

(5) The kachha arahtia, unlike the pacca arahtia, does not have any dominion over the goods. 

(6) The kachha arahtia has no personal interest of his own when he enters into transaction and his interest is limited to the commission agent’s charges and certain out of pocket expenses whereas a pacca arahtia has a personal interest of his own when he enters into a transaction. 

(7) In the event of any loss, the kachha arahtia is entitled to be indemnified by his principal as is not the case with pacca arahtia.”  

The CGST Act makes no differentiation between kachha arahtia and pacca arahtia.

Moreover, the Central Excise also referred this word at par with the word broker in only Circular No.703/19/2003-CX dt.25.03.2003, F. No. B3/1/2003-TRU but never used by the trade or officers, so frequently.

Next word in the definition of Agent is ‘del credere agent’ (herein after referred to as DCA). The ‘del credere agent’ is an agent who is required by the principal to enter into a guarantee of the debts to the principal of customers whom he finds for the principal with whom he concludes contracts on behalf of the principal Or a del credere agency is a type of principal-agent relationship wherein the agent acts not only as a salesperson, or broker, for the principal, but also as a guarantor of credit extended to the buyer. Though a del credere commission is a commission which is paid as direct commission instead of paying through someone else, it makes no difference for GST. In its Circular No.73/47/2018-GST, dated 5-11-2018 F. No. 20/16/04/2018-GST, the Board has clarified that the factor that differentiates a DCA from other agents is that the DCA guarantees the payment to the supplier and in such scenarios where the buyer fails to make payment to the principal by the due date, DCA makes the payment to the principal on behalf of the buyer (effectively providing an insurance against default by the buyer) and for this reason the commission paid to the DCA may be relatively higher than that paid to a normal agent. In order to guarantee timely payment to the supplier, the DCA can resort to various methods including extending short-term transaction-based loans to the buyer or paying the supplier himself and recovering the amount from the buyer with some interest at a later date. As the said clarification has been issued under section 168(1) of the Central Goods and Services Tax Act, 2017, reproduced below the table of the issues and clarification.

Sl. No.	Issue	Clarification
1.	Whether a DCA falls under the ambit of agent under Para 3 of Schedule-I of the CGST Act?	As already clarified vide circular No. 57/31/2018-GST, dated 4th September, 2018, whether or not the DCA will fall under the ambit of agent under Para 3 of Schedule-I of the CGST Act depends on the following possible scenarios : In case where the invoice for supply of goods is issued by the supplier to the customer, either himself or through DCA, the DCA does not fall under the ambit of agent. In case where the invoice for supply of goods is issued by the DCA in his own name, the DCA would fall under the ambit of agent.
2.	Whether the temporary short-term transaction based loan extended by the DCA to the recipient (buyer), for which interest is charged by the DCA, is to be included in the value of goods being supplied by the supplier (principal) where DCA is not an agent under Para 3 of Schedule-I of the CGST Act?	In such a scenario following activities are taking place : 1.   Supply of goods from supplier (principal) to recipient; 2. Supply of agency services from DCA to the supplier or the recipient or both; 3.  Supply of Extension of loan services by the DCA to the recipient.  It is clarified that in cases where the DCA is not an agent under Para 3 of Schedule-I of the CGST Act, the temporary short-term transaction based loan being provided by DCA to the buyer is a supply of service by the DCA to the recipient on Principal to Principal basis and is an independent supply.  Therefore, the interest being charged by the DCA would not form part of the value of supply of goods supplied (to the buyer) by the supplier. It may be noted that vide notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017 (S. No. 27), services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) has been exempted.
3.	Where DCA is an agent under Para 3 of Schedule-I of the CGST Act and makes payment to the principal on behalf of the buyer and charges interest to the buyer for delayed payment along with the value of goods being supplied, whether the interest will form a part of the value of supply of goods also or not?	In such a scenario following activities are taking place : 1.  Supply of goods by the supplier (principal) to the DCA; 2.  Further supply of goods by the DCA to the recipient; 3.  Supply of agency services by the DCA to the supplier or the recipient or both; 4.Extension of credit by the DCA to the recipient.  It is clarified that in cases where the DCA is an agent under Para 3 of Schedule-I of the CGST Act, the temporary short-term transaction based credit being provided by DCA to the buyer no longer retains its character of an independent supply and is subsumed in the supply of the goods by the DCA to the recipient. It is emphasised that the activity of extension of credit by the DCA to the recipient would not be considered as a separate supply as it is in the context of the supply of goods made by the DCA to the recipient.  It is further clarified that the value of the interest charged for such credit would be required to be included in the value of supply of goods by DCA to the recipient as per clause (d) of sub-section (2) of section 15 of the CGST Act.

In Service Tax regime there was a dispute whether ‘del credere’ agent are Clearing and Forwarding Agent, which was settled by various Orders of Hon’ble Tribunal that the ‘del credere agent’ is not a Clearing and Forwarding Agent.

Now the next word in the definition of agent is an auctioneer. An auctioneer is a person who manages an auction, or a public sale at which people can bid on items. It’s exciting to win the bidding at an auction and hear the auctioneer shout, “Sold!”

Auctioneer’s service was introduced as a separate and independent service in the Service Tax regime on 01.05.2006 and it was separately dealt with than ‘agent’. It was prescribed under section 65(105)(zzzr) of the Finance Act, 1994, as below;

 “SECTION 65.Definitions. — In this Chapter, unless the context otherwise requires, –

(105) “taxable service” means any [service provided or to be provided, –

65(105)(zzzr) to any person, by any other person, in relation to auction of property, movable or immovable, tangible or intangible, in any manner, but does not include auction of property under the directions or orders of a court of law or auction by the Government.

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “auction by the Government” means the Government property being auctioned by any person acting as auctioneer.”

In the Appeal against the Advance Ruling No.KAR/ADRG 87/2019, dated 26-9-2019, the Appellate Authority of Advance Ruling, Karnataka, vide its Order No.KAR/AAAR-12/2019-20, dated 5-2-2020 [IN RE : International Flower Auction Bangalore Ltd. 2020 (34) G.S.T.L. 610 (App. A.A.R. – GST – Kar.)], set aside the above mentioned Advance Ruling and rejected the claim of the assessee that there services are exempted from GST as it is covered under Sr. No.54(g) of Not. No.12/2017 – Central Tax (Rate), dated 28-6-2017 and classified the said service under Auctioneer service, as taxable service. Interestingly, the Order explains the various agents as below;

“…………………. that there are several kinds of mercantile agents, such as broker, factor, commission agent, Auctioneer, del creder agent, arhatia etc. The common factor is that all the above types of mercantile agents carry on the business of supply or receipt of goods and services on behalf of another person. However, the nature of activities done by each of the above-mentioned agents is different as mentioned below:

Broker : A broker is a mercantile agent who has been appointed to negotiate and enter into a contract for sale or purchase of goods while the possession and control of the goods is with the principal.

Factor : A factor is a mercantile agent who has the authority to sell or dispose goods which are in his possession.

Auctioneer : An auctioneer is a mercantile agent who sells goods by way of public offer to the highest bidder for the principal.

Del Credere : A del credere is a mercantile agent who establishes contract between his principal and third party. The del credere agent also guarantees to the Principal the performance of the contract by the third party.

Commission Agcnt : A commission agent is one who is appointed by his principal to purchase goods in the market on behalf of the principal for which a commission is charged by the agent.”

The last specific word in the definition of agent in CGST Act is mercantile agent. The meaning of the mercantile itself is ‘related to trade or business’. So, all other types of agents can be covered under common nomenclature as mercantile agents.

Now if we look at the explanatory notes for supply of services under GST some of the agents giving service related to different commodities or service are classified separately. 

• “996712 Customs House Agent services–

This service code includes services provided by a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962, related to import or export of goods.

• 996713 Clearing and forwarding services–

This service code includes services provided by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner and includes services provided by a consignment agent.

• 997152 Brokerage and related securities and commodities services including commodity exchange services–

This service code includes :

–     brokerage services (that is bringing together purchasers and sellers of the same instrument) for securities

–     services of acting as a selling agent of units, shares or other interests in a mutual (investment) fund

–     sales, delivery and redemption services of government bonds

–     brokerage of options

–     brokerage services for commodities and commodity futures, including financial futures

–     brokerage services for financial derivatives

–     computer-based clearing and settlement for interchange of debits, credits and transfer of ownership of securities.

• 999613 Audiovisual post-production services.

xiv. licensing and/or agent services for licensing of music and sound bundled with mixing or integration services.

This service code includes business brokerage and appraisal services other than for real estate; business services of intermediaries and brokers; specialist advice other than for real estate, insurance and engineering (specialist services in art, specialist services for courts of law, etc.); services by agencies and agents on behalf of individuals seeking engagements in motion pictures, theatrical productions, modelling or other entertainment or sports attractions; placement of books, plays, artwork, photographs, etc., with publishers, producers, etc.; issue of reduced-price coupons and gift stamps; management services for copyrights and their revenues (except from films); management services for rights to industrial property (patents, licences, trademarks, franchises, etc.); auctioning services other than in connection with legal procedures; reading of electric, gas and water meters; data preparation services; specialized stenotype services such as court reporting; public stenography services; other business support services not elsewhere classified.”

The following are the definition of some of the persons where the agents are included;

“Sec.2(20) of CGST Act “casual taxable person” means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business;

Sec.2 (77) of CGST Act “non-resident taxable person” means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.” 

Likewise the Output tax includes tax chargeable on the supply by agent;

“Sec.2 (82) of CGST “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.” 

In the same fashion place of business includes the place of agent if taxable person engaged in the business through him in the following definition;

 “Sec.2 (85) of CGST “place of business” includes —

(a) a place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or

(b) a place where a taxable person maintains his books of account; or

(c) a place where a taxable person is engaged in business through an agent, by whatever name called.”

 Principal with relation to agent is defined as;

“Sec.2 (88) of CGST “principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.” 

In the definition of recipient and supplier of goods and service even the agent of the recipient or supplier is also made responsible;

“Sec.2 (93) of CGST “recipient” of supply of goods or services or both, means —

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.”

 “Sec.2 (105) “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.”

The article did not cover pure agent, stock broker, insurance agent due to paucity of space. Though the author has tried to cover maximum possible provisions of GST and other laws however, possibly some of the aspects must have remained to be considered.