Supply through agent (Rule 29)
Every supply involving an agent is not a taxable supply. As discussed in Chapter III, supply by Principal and Agent inter se, all though merely a channel to supply to the end customer, is treated as a supply in Schedule I where the goods are handled by the Agent or principal. Please note that this rule is applicable only in case of ‘supply of goods’ and not ‘supply of services’ or ‘supply involving goods treated as supply of services’. When this rule is applicable, the value of supply will be:
(i) open market value or ‘at the option’ of supplier 90% of the price charged for goods of ‘like kind and quality’ by the Agent– this rule provides for an ad hoc reduction of 10% from the price otherwise charged to accommodate the incentive or margin left for the Agent in pricing. Where margins are lower than 10%, this rule can cause great anguish. But, discarding the use of this clause is not permitted freely.
(ii) value determined by rule 30 or rule 31 – please refer to subsequent discussion.Transactions treated as supply by Schedule I of the CGST Act, which need to be subjected to tax requires a valuation mechanism. Principal and Agent do not ipso facto become related persons for rule 28 to be applicable to them.
Please note that agency cannot be inferred but must be express or implied. Agency may be understood as ‘delegated authority’ and ‘detached consequences’. Within the scope of agency, the Principal will be obligated to third parties without any limit by actions of the Agent. As such, the authority to the Agent to act is delegated by the Principal and the Agent is not obliged to the consequences arising from his actions, provided they are within the scope of the agency. Undisclosed Principal still obligates the Principal because the lack of disclosure is to the third party and not that the Principal is unaware of the possible obligations accruing.
It is important to note that not all transactions between a Principal and Agent attract paragraph 3, schedule I. but it is only those transactions where the Agent ‘handles’ the goods of the Principal. Only when it is identified that it is a transaction of such nature, will the valuation under this rule become applicable. Further, it is to be considered that recourse to this rule is not an option because every transaction between Principal and agent are disqualified undersection 15(1) and required to be examined with reference to these rules. Once having arrived at rule 29, there is only one method – price of supply of goods of like kind and quality – and no others. This rule applies only in respect of goods and not services.
There is a very interesting clue in a press release that permits advertisement agency to opt for either agency-model or resale-model as regards publishing of advertisements in media. Here, the press release appears to require an alternation in the contractual arrangement with the media (which may not be agreeable or not advisable), but it would be advantageous if, for limited purposes of GST, the agency were to apply agency-model or the resale-model.