Section 86 of GST – 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.

Analysis of this Section

Introduction 

This section directly casts the liability on a principal, in addition to the liability of the agent who effects the supply of taxable goods on behalf of principal or procures taxable goods on behalf of his principal.

Analysis

Under the GST law, in cases where –

— Taxable Goods are supplied by agent on behalf of principal; or— Taxable Goods are procured by agent on behalf of principal;

the agent is primarily liable for tax. However, by virtue of this provision, both agent and principal, will be jointly and severally made liable to pay for tax payable on such supplies. It is important to note that transactions between a Principal and Agent involving ‘handling’ of goods is regarded as a supply inter se vide paragraph 3 of schedule I of CGST Act, 2017. But, in terms of this section, ‘joint and several’ liability is being fastened on the person, who is not covered by the said fiction (as regards supply). This section is meant to provide recourse to the Government against either of them or not necessarily only upon default by the principal obligor. The Government is free to recover dues from either of them or both (up to the total dues only) without having to exhaust its remedies against the one who was principally liable (principal obligor) and then only proceed against the other. Please note that there is no compulsion that the Government should have exhausted its remedies against the Principal to proceed against the Agent, that is the effect of joint-and-several. Once Agent pays, remedy of subrogation (refer section 92 of Transfer of Property Act and section 69 of Indian Contract Act) will be available to the Agent to stand in the shoes of a creditor and recover under a civil suit, dues that were owed by the Principal.

Issues and Concerns

Liability of the principal who effects supplies through an agent or a principal who receives supplies through an agent, does not end as soon as he (principal) pays tax on the supply made by him to agent for further supply; instead the liability in the hands of the principal continues till the time a further supply is made by agent – say to the final customer (B2B or B2C) and tax is duly discharged by agent on the said supply. This in effect means, that the principal needs to keep a track of compliance by an agent apart from the compliance requirements to be followed by him under the said law, which is an added burden in the hands of principal.

Latest circulars

Circular No. 57/31/2018 dated 4th Sept 2018 rectified with a corrigendum to the circular issued on 5th Nov 2018 states that an agent shall be liable to compulsorily register if he fulfils two conditions:

(a) The principal should be a taxable person; and(b) The supply made by the commission agent should be taxable.

Circular No. 73/47/2018 dated 5th Nov 2018 on Del Credere agent states the scenarios under which the services of DCA Agents would be considered an agent services and applicability of GST to the DCA agency services. Recommended Articles –

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