Valuation Of Supply - Principal To Agent And Vice Versa


Date: 21 Sep 2022

Supply Between Principal To Agent And Vice Versa

The Goods and Service Tax (GST) brings and felicitates the concept of ‘One Nation One Tax’ under the economic regime of India. Currently, GST is charged on the transaction value. The transaction value refers to the price paid or payable for the supply of goods and services between unrelated expenses, which is the sole consideration for the supply. 


Value of Supply Of Goods Made Or Received Through An Agent

The principal supplies products to an agent or vice versa and these scenarios are particularly covered by the recently introduced GST valuation standards. Such supplies are chargeable under GST. In simple words, any supply from the principal to an agent or otherwise will attract GST. Both parties must refer to these valuation rules to avoid a dispute with tax administrative authorities. 

Who Is a Principal?

As per the definition provided under GST law, the term ‘Principal’ means a person on whose behalf an agent carries on a business of supply or recipient of goods or services or both. For example, a dealership store of an automobile company is an excellent example of a Principal-Agent relationship.


Who Is An Agent?

Section 1(5) of the central goods and services tax, 2017, defines an agent as a person, including a factor, broker, commission, agent, del credere agent, an auctioneer, or any other merchant agent, who carries on the business of supply or recipient of goods or services or both on behalf of any other. A DelCredere agency is a principal-agent relationship in which the agent guarantees the buyer's credit and serves as the principal's salesperson or broker.


What Do We Understand By Principal and Agent Relationship?  

The relationship between principal and agent has been explained in detail in Schedule 1 of CGST Act, 2017 vide circular no-57/31/2018-GST dated 04/08/2017. The provision of goods by an agent on behalf of the principal without consideration has been regarded as a supply under the provisions of said schedule 1 of the Central Goods and Service Tax, 2017.

Branches Of Any Supply Under GST

The two branches of any supply under GST are-

  • Consideration: The consideration is not abiding in any transaction and does not drop within the scope of any supply. There are specific scenarios, as provided in schedule 1 of the CGST Act. The supply of goods is stated below.

  1. Supply of Goods

    1. By a principal to his agent when the agent agrees to provide the items on the principal's behalf

    2. By an agent to his principal, the agent agrees to accept the products on the principal's behalf. 

It is well known that not all interactions and transactions between a principal and an agent, or vice versa, fall inside the scope of the specified entry.

First, the provision of services between the principal and the agent, and vice versa, falls beyond the purview of the preceding item and so calls for "consideration" to be considered a provision of services. This would affect the final GST calculation.

Second, this article has contracted the phrase "supplier or recipient of products on behalf of the principal" that is included in the definition of "agent."

  1. Course of Furtherance of Business

Section 7 of the CGST Act 2017 defines the scope o valuation of supply under GST. According to sub-section (1) clause (a), "supply" refers to any type of exchange of goods or services for money in the course or advancement of business.

In goods and services tax law, the supply of goods, services, and supplies made by the principal to his agent or agent to his principal shall be liable to tax even if any such transaction does not contain any consideration for such supplies. 



Determining the relationship would address a few questions, such as; whether an invoice for further valuation of the supply of goods on behalf of the principal is issued by the agent or not. Any provision of services from the principal agent and vice versa would fall within the ambit and scope of schedule 1 of the CGST act. 

The products will be invoiced in the agent's name when the agency secures them on the principal's behalf. The given entry in Schedule 1 of the Central Goods and Services Tax Act of 2017 would apply to the upcoming provision of the above supplies and services by the agent to the principal.