Agents under Goods and Service Tax (GST) Regime
According to provisions of the Goods and Service Act, 2017, the registration of the agents is mandatory. It is not related to the turnover in the financial year. It is a compulsory compliance of each and every agent to register under the above said Act. In other words, the limit of turnover of Rs. 20 lacs or Rs 40 lacs (as the case may be) is not applicable in the case of agent. Even if an agent made a taxable supply of Re. 1, he will be liable to get registered under the GST Act. GST registration is mandatory for all the agents who is making taxable supply on the behalf of other taxable person.
Definition of Agent
Agent is a person who carries the business or makes taxable supply on the behalf of another taxable person. This definition also includes a factor, broker, commission agent, an auctioneer or any other person, known by any name, who carries on the business on behalf of other. It means a person who is engaged in the supply of goods or services or both on the behalf of principal.
All the supply of goods made by the principal to agent or vice versa, without any consideration, will be considered as supply under the Act.
GST is applicable for agents and the above-mentioned persons. To understand the liability that will arise on the agent, we first need to understand the nature of work of pure agent.
Meaning of Pure Agent
Pure agent means a person who-
- Enters into contract with the customers or third person (Recipient). He incurs all expenditure or costs in the course of supply of Goods or Services or both.
- Never gains or intends to hold or holds any title to the goods or services or both which are received to make a supply to the receiver of supply.
- He will not use such goods or services for his own interest, and
- He receives only the decided amount incurred to gain the service or to procure such goods or services. If any additions is incurred for the supply, he handles that on his own account.
ABC is a manufacturer of clothes; it sends the products on consignment. XYZ is a transport agency, which transports goods from one city to another. ABC approaches XYZ for transporting the goods to the mentioned store of ABC. Now, ABC authorizes XYZ to incur any legal expenses and pay the expenditure incurred during transportation of the goods. ABC also agrees to reimburse all the legal expenses and payment related to transportation services. Now during the transportation any expenses incurred will made by XYZ, acting as a pure agent, all these payments will be reimbursed to XYZ by ABC.
If XYZ incurred Rs. 7000 for legal expenses and he charges more than that to ABC then XYZ will not be the pure agent.
If XYZ transports articles, having personal interest, along with the main goods then XYZ would not be considered as a pure agent.
Value of supply-
The last para explains who will be considered as a pure agent. The valuation rules explain that expenses made by pure agent, will not be considered in the value of supply and aggregate turnover. However, such exclusion of expenditure incurred as pure agent is possible, if all the conditions to be a pure agent are satisfied.
Further conditions in the rules are satisfied by the supplier in each case. The supplier would have to satisfy the following conditions (in addition to the condition required to be satisfied to be considered as a pure agent) for exclusion from value as under-
- the supplier acts as a pure agent of the receiver of the supply, when he makes payment to the third party on authorization by the receiver.
- 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.
In case the conditions are not satisfied, such expenditure incurred shall be included in the value of supply under GST.
The following illustration will make the concept more clear :
- Port fees, Port charges, Custom duty, dock dues, transport charges etc. paid by Customs Broker on behalf of owner of goods.
- Expenses incurred by C& F agent and reimbursed by principal such as freight, warehouse charges.
The Author of the above article is Aditya Kishore, ICAI.
Disclaimer– The above article is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information. And for any actions taken in reliance thereon. It is being prepared based on understanding of provisions as stood applicable as on date.
Also, www.babatax.com and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.