By TIOL News Service

NEW DELHI, NOV 06, 2018: IN two major clarifications issued today, the Govt has clarified certain issues relating to TCS by Tea Board and the scope of principal and agent relationship under Schedule I of CGST Act, 2017 in the context of del-credere agent.

The CBIC Circular has stated that the Tea Board, being the operator of the electronic auction system for trading of tea across the country including for collection and settlement of payments, falls under the category of electronic commerce operator liable to collect Tax at Source (TCS). The participants in their auctions are the sellers i.e. the tea producers and auctioneers who carry out the auction on behalf of such sellers and buyers.

It was represented to the Govt that the buyers in the said auction make payment of a consolidated amount to an escrow Account maintained by the Tea Board. The said consolidated amount is towards the value of the tea, the selling and buying brokerages charged by the auctioneers and also the amount charged by the Tea Board from sellers, auctioneers and buyers. Thereafter, Tea Board pays to the sellers from the said escrow account, for the supply of goods made by them and to the auctioneers for the supply of services made by them (i.e. brokerage). Under no circumstances, the payment is made by the Tea Board to the auctioneers on account of supply of goods i.e., tea sold at auction.

So, here comes the confusion whether the Tea Board is covered by the provisions of Sec 52 of the CGST Act. The Govt has now clarified that,

(i) sellers (i.e. tea producers) on the net value of supply of goods i.e. tea; and

(ii) auctioneers on the net value of supply of services (i.e. brokerage).

Through another Circular on the issue of scope of principal and agent relationship under Schedule I of CGST Act, 2017 in the context of del-credere agent.

The Circular notes that post-issuance of circular No. 57/31/2018-GST dated September 4, 2018, various representations were 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 (DCA). In order to clarify these issues and to ensure uniformity of implementation across field formations, the Board has clarified that 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 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:

Q: 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?

Answer: 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 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.