Oberoi Law Chambers


Relationship of Agent and Principal in GST Transactions


The ambit of the relationship of the principal and agent has been laid down in Schedule 1 of the CGST Act, 2017, especially elaborated vide Circular dated 04th April 2017. In accordance with Schedule-1 of the CGST Act, 2017, that aims to broadly lay down provisions for taxation on intra-state transactions and matters which are thereby connected or incidental, states that even if a supply of good is made by agent on behalf of principal, sans consideration, it is considered to be a supply. This article elaborates on the relations between an agent and principal, with reference to GST transactions in particular, and the technicalities involved in the same, as well as the legal consequences that follow non-compliance with the rules.


Under the recently promulgated GST Valuation Rules, Chapter 29, entitled, ‘Valuation in GST’, elaborates upon computation of valuation of goods supply, as well as services, that are undertaken in distinct circumstances, with relation to different persons, encompassing the agent & principal relation. Under the header, ‘value of supply of goods made or received through an agent’, it elaborates that the open market value of the goods shall be computed, or based on the desire of the supplier, taking into consideration kind, quality and other particulars of goods. Thus, it is clear that the scope of the principal agent relationship has been given legal backing under the scheme laid down by CGST Act, 2017, as well as GST Valuation Rules.

Defining an Agent & Principal

An ‘Agent’ is defined under Section 2(5) of the CGST Act, 2017, as a person who can encompass the role of either a factor, a broker, agent for commission, del-credere agent, arhatia, or an auctioneer, or falling under other mercantile agent, ostensibly mutually exclusive of each other, who is involved in either receipt of goods, or supply business pertaining to another. It is understood to be a wide and inclusive meaning. The Integrated Goods & Services Act (2017), further elaborates on the terminology of the related ‘intermediary’, which can be understood from the lens of purposive construction to mean an agent. 

While a ‘Principal’ is defined under Section 2(88) of the CGST Act, 2017, as a person, for whom the agent carries on business of goods and services, or both, on the behalf of whom an agent works. 

Agent Principal Relations under GST Transactions

The general rule, in lines with the present GST law is that any supply of goods and services by agent to principal, or vice versa, is liable to be taxed, even if it is barring consideration for the said supplies. This section of the article shall elaborate on the inviolable relationship between the agent & principal, with respect to GST Transactions.

Determining the Relationship-

There is a need for receipt of the fact that not all activities that are carried out in general parlance between a principal and an agent fall within the ambit of the CGST Act, 2017. In order to bring a transaction concerning supply between the agent and principal under the CGST Act, 2017, consideration is stipulated as a prerequisite to categorize it as a supply, and therefore, attract GST and affect the agent and principal. 

The exigencies involved in determining agent and principal’s relationship are many, but the most imperative factor is whether the agent is representing the principal overtly, and involved, at the time of seeking to determine the relationship, in the transactions by way od supply and receipt of goods, on the behalf of the principal in question.

Key Ingredient for Determination-

If the agent is actively issuing the invoice for the subsequent supply of goods on behalf of the principal, it would be imperative to determine the relationship under GST. Any provision of goods from the principle to the agency would fall within the fold of the GST Rules entry if the invoice for supply is being issued by the agent in his name. However, the agent will not be covered by Schedule I of the CGST Act if the customer receives the invoice from the agency in the principal’s name. 

In other words, the key issue is whether the agent is qualified to transfer or accept ownership of the items on behalf of the principal, and whether he has been authorized to do so.

Regarding Transactions As a general principle, it is understood that an agent does not have the right to issue bills in their own name, or use the GST number allotted for transactions on behalf of the principal company. For all GST related transactions thereof, it is compulsory for an agent to issue receipts in the name of the principal company, and mention must be made explicitly of the GST number of the principal company, pertaining to transactions. Failure to comply with this rule can lead to legal consequences.

Further, while an agent can receive payments on behalf of the principal company, it is preferred that in the interests of transparency, that the payments be made in the name of the principal company, and not the agent. The receipt of payment towards the principal also helps to avoid any confusion apropos disputes in the future.

Regarding Supply of Goods

In accordance with GST legislation, the supply of goods by a principal to his agent or by an agent to his principal is subject to tax even if there is no payment made in exchange for the deliveries. Even if made without consideration, Schedule-I deems the supply of goods between the principal and his agent to be a supply subject to GST levy. It would need “thought” to classify the provision of services between the principal and the agent, and vice versa, as a supply because they fall outside the purview of the entry in question. Moreover, the CGST Act makes registration for agents involved with taxable supply of goods or services mandatory, whether with or without consideration. 

Liability to Pay Tax, etc. 

Under Section 86 of the CGST Act (2017), entitled ‘Liability of Agent & Principal’, it is stated that a provision exists for joint as well as several liability of both the Agent & Principal, with respect to payment of taxes for the goods received by either in the capacity of the relationship. A complementary rule, as stipulated under Section 56 of the CGST Act (2017), states that accounts must be maintained by registered persons, which could either be a principal or an agent, depending on the facts and circumstances pertaining to the case.


Based on the aforementioned analysis, it can be discerned that the focal point for determination of a principal agent relationship, especially in GST Transactions, depends upon the authority of the said agent with respect to receipt, supply and transactions pertaining to goods and services, and the ability to make purchases on behalf of each other. Howsoever, the governance of matters incidental and connected thereto has been comprehensively been expounded upon in the CGST Act (2017) for effective practices.

Recent POSTS

Disclaimer & Confirmation

As per the rules of the Bar Council of India, lawyers and law firms are not permitted to solicit work or advertise. By clicking on the “I agree” button below, the user agrees and acknowledges that: –

The contents of this website do not constitute, and shall not be construed as, legal advice or a substitute for legal advice. Oberoi Law Chambers is not liable for any consequence of any action taken by the user relying on material / information provided on this website or through any external links thereon. The information provided under this website is solely available at the user’s request for informational purposes only.

I Agree