Supply by del-credere agent & scope of Principal Agent Relationship as per Schedule I of CGST Act

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Del-credere agent (DCA) is a selling agent who assists the supplier to supply goods or services by contacting potential buyers on his behalf and also guarantees payment to the supplier by the due date. Where the buyer fails to make payment to the principal by the due date, DCA makes the payment directly to supplier by resorting to various methods such as 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.

Circular No. 73/2018-CGST dated 05.11.2018 has clarified the treatment of supplies and valuation thereunder for the different set of activities undertaken by the DCA under Principal-Agent relationship and otherwise.

  • Coverage of DCA under definition of ‘Agent’ as per Schedule I

DCA will be covered under the definition of ‘Agent’ if the invoice for supply of goods has been issued by DCA on his own account, as clarified earlier in Circular No. 57/2018 dated 04.09.2018.

  • If DCA is not an agent as per Schedule I, interest charged on loan extended by DCA to buyer not to be included in value of goods supplied by supplier

As DCA is not an agent as per Schedule I, the supply of loan services to buyer is on Principal to Principal basis and is an independent supply.

Interest not to form part of value of goods supplied to the buyer. Also, as per Entry No. 27 of Notification No. 12/2017-CGST (Rate) dated 28.06.2017, services by way of extending deposits, loans or advances where the consideration is by way of interest or discount (other than interest involved in credit card services) has been exempted.

  • If DCA is an agent as per Schedule I and makes payment to principal on behalf of buyer; interest charged to buyer for delayed payment to form part of value of supply of goods

In this case, activity of extension of credit facility by DCA to buyer not to be treated as a separate supply as DCA is an agent and the activity has subsumed with the supply of goods by DCA to buyer. Value of interest charged to be included in value of supply of goods by DCA to buyer.

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