Circular No. 73/47/2018-GST
F. No. 20/16/04/2018- GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
New Delhi, Dated the 5th November, 2018
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Subject: Scope of principal and agent relationship under Schedule I of CGST Act, 2017
in the context of del-credere agent - Reg.
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Post issuance of circular No. 57/31/2018-GST dated 4th September, 2018 from F. No.
CBEC/20/16/4/2018-GST, various representations have been received from the trade and
industry, as well as from the field formations regarding the scope and ambit of principal agent
relationship under GST in the context of del-credere agent (hereinafter referred to as “DCA”).
In order to clarify these issues and to ensure uniformity of implementation across field
formations, the Board, in exercise of its powers conferred under section 168 (1) of the Central
Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) hereby clarifies
the issues in succeeding paras.
2.
In commercial trade parlance, a DCA is a selling agent who is engaged by a principal
to assist in supply of goods or services by contacting potential buyers on behalf of the
principal. The factor that differentiates a DCA from other agents is that the DCA guarantees
the payment to the supplier. 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. This loan
Circular No. 73/47/2018-GST
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is to be repaid by the buyer along with an interest to the DCA at a rate mutually agreed
between DCA and buyer. Concerns have been expressed regarding the valuation of supplies
from Principal to recipient where the payment for such supply is being discharged by the
recipient through the loan provided by DCA or by the DCA himself. Issues arising out of
such loan arrangement have been examined and the clarifications on the same are as below:
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
Circular No. 73/47/2018-GST
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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
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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.
3.
It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
4.
Difficulty, if any, in implementation of the above instructions may please be brought
to the notice of the Board. Hindi version would follow.
(Upender Gupta)
Commissioner (GST)
