Under the GST regime, Goods and Services Tax (GST) is leviable on supply of goods or services or both. The scope of Supply is explained under section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act). As per clause (a) of sub-section (1) of section7 of the CGST Act, the “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
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 paragraph 3 of Schedule I to the Act, according to which 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, would be regarded as supply even if made without consideration.
It may be noted that all the activities between the principal and the agent and Vice versa do not fall within the scope of the said entry. Firstly, 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 and thus, be liable to GST.
Secondly, the element identified in the definition of “agent”, i.e. “supply or receipt of goods on
behalf of the principal” has been retained in this entry.
2. Agent and Principal – Defined
Clause (5) of the CGST Act defies the term “agent” to mean 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.
The term is also defined under section 182 of the Indian Contract Act, 1872, according to which the “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
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.
As per clause (88) of section 2 of the CGST Act, “principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
3. Key ingredient to determine Principal-agent relationship
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 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 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. In other words, the crucial point is whether or not the agent has the authority to pass or receive the title of goods on behalf of the principal.