2019 (11) TMI 1715 - AAAR - GST

Requirement of registration - commission agent, providing services in relation to sale or purchase of agriculture produce - reverse charge mechanism on services provided in sale of raw cotton vide notification No. 121/ST-2, dated 14.11.2017 - HELD THAT - The provisions of Sections 7(l)(c) of the CGST/HGST Act are relevant. The provisions of the Section 7(1) clause (c) provide that the activities specified in schedule I shall be treated as supply under GST, even if made without consideration. One such activity, as detailed in Para 3 of schedule I, is in relation to the activities between the principal and his agent. The scope of principal-agent relationship in the context of Schedule I of the CGST Act is clarified by circular No. 57/31/2018-GST dated 04th September, 2018 (to be read with the corrigendum dated 05 th November, 2018). As clarified vide above circular, the crucial component for covering a person within the ambit of the term 'agent', as contained in sub Section (5) of Section 2 of the CGST Act, is corresponding to the representative character identified in the definition of agent under the Indian Contract Act, 1872. The said circular further clarifies that a key ingredient for determining whether the agent is wearing the representative hat and is supplying or receiving goods on behalf of the principal would be whether invoice for further supply or goods on behalf of the principal is being issued by the agent or not. Since, a commission agent 'Kachha Arhtiya' supplies goods to the buyers against 'Form I' as prescribed under the APMC Act of the State, vide which the titled of goods is passed on to the buyer against an agreed upon rate of the goods. The commission agent also charges its commission and other incidental charges through the said Form I under the APMC Act. The said Form I issued under the APMC Act is therefore sufficient test to hold that the commission agent i.e. 'Kachha Arhtiya' is supplying goods on behalf of agriculturists and is covered under the definition of 'agent' as contained in sub Section (5) of Section 2 of the CGST/HGST Act. There is no merit in the argument of the appellant that he cannot be treated as recipient in terms of definition of recipient, as contained in Section 2(93) of the Acts ibid. Further, the reliance on circular No. 452, dated 17.03.1986 by the Central Board of Direct Taxes on this issue is also misplaced. The advance ruling authority has therefore rightly held that such commission agents are liable for registration since they qualify as agents under schedule I subject to the provisions of Section 22(1) of the Acts ibid where the aggregate turnover of supply of exempted as well as taxable goods or services exceeds the threshold limit and that such commission agents shall also be liable for compulsory registration as per provisions of Section 24 (vii) of the Acts ibid and they shall be liable to charge tax on RCM basis on supply of Taw cotton'.

Summary

Issues:
1. Interpretation of provisions under CGST and HGST Acts regarding registration and tax liability of commission agents.
2. Applicability of reverse charge mechanism on services provided by commission agents in the sale of raw cotton.
3. Definition of turnover for commission agents and its implications on registration requirements.

Analysis:
1. The case involved a commission agent seeking an advance ruling on whether they are liable for registration and tax under reverse charge mechanism for services related to the sale of agricultural produce. The appellant argued that the ruling by the Advance Ruling Authority was against the law and facts, as it considered turnover made by the principal as turnover made by the commission agent, making the agent liable for registration. The appellant contended that turnover for commission agents only includes commission income, not the value of goods. They also argued that the principle of composite supply should apply, with the tax rate of the principal supply being applicable to the second supply, which is exempted.

2. The Advance Ruling Authority held that a commission agent exceeding the threshold limit of turnover from exempted and taxable supplies is liable for registration. The authority also stated that commission agents are liable for tax under reverse charge mechanism for the supply of raw cotton by agriculturists, as specified in relevant notifications. The authority clarified that commission agents acting as agents under Schedule I are required to register if their turnover exceeds the threshold limit, and they must charge tax on reverse charge basis for the supply of raw cotton.

3. The discussion focused on the definition of agent under the CGST and HGST Acts, emphasizing the issuance of invoices by commission agents as a key factor in determining their status as agents. The circulars and notifications provided guidance on the obligations and liabilities of commission agents, especially concerning the supply of goods like raw cotton. The judgment upheld the ruling of the Advance Ruling Authority, stating that commission agents must register if their turnover exceeds the threshold limit and are liable for tax under reverse charge mechanism for specified supplies.

In conclusion, the appeal was dismissed, affirming the ruling that commission agents are subject to registration and tax obligations as per the provisions of the CGST and HGST Acts, including the reverse charge mechanism for specific supplies.