Dec 052018
 

Del-credere agent (DCA) under GST

Meaning of Del-credere agent:

It is a type of principal-agent relationship wherein the agent acts not only as a salesperson or broker for the principal, but also as a guarantor of credit extended to the buyer.

  • 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 and
  • The commission paid to the DCA may be higher than that paid to a normal agent.
  • DCA in turn charges small amount of interest from the buyer with the amount of supply from supplier.
  • In some cases DCA enters into a separate agreement for extending transactional based loan to buyer.

Issue involved:

Whether valuation of supply would include amount of interest being paid by the buyer to agent for supplies made by principle?

Examination of Relevant law:

Section 7 of CGST Act read with para 3 of schedule 1: ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION:

Supply of goods—

  1. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
  2. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

Thus, if agent is working on behalf of principal then supply of goods is different from interest charged by agent from buyer and

if both agent and principal are working independently than supply of goods be agent to buyer and interest charged by him are against for one and same transaction and thus, GST would charged on combine value of amount against supplies and interest charged thereon.

Analysis of facts:

Here two scenarios are possible:

Scenario 1 Scenario 2
Where the invoice for supply of goods is issued by the supplier to the buyer:

1.     Invoice may directly issued by supplier to buyer

2.     Invoice may be passed through agent but issued by supplier

Where the invoice for supply of goods is issued by the DCA in his own name
Result of scenario
Agent is not working as DCA agent. Agent is DCA agent.
Implication on GST:
The value of interest charged by agent would be a separate transaction and GST would not be applicable on that amount as same in exempted supply. 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 section 15(2)(d) of the CGST Act

Sensys Technologies

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