1. Why Section 86 matters
Searches such as “Section 86 CGST Act”, “Section 86 GST”, “agent and principal GST liability”, “commission agent GST liability”, “del credere agent GST”, “GST liability of agent” and “who pays GST when an agent sells goods” relate directly to this provision.
Agency arrangements are common in trading, agriculture, commodities, auctions, distribution and many other businesses. The commercial agreement may say that an agent acts for the principal, but GST law can impose a direct liability framework on both parties.
Section 86 therefore needs to be read with Section 2 definitions, Schedule I, registration provisions, invoicing provisions and the accounts-and-records rules.
2. Section 86 in very simple language
Imagine a manufacturer appoints a commission agent to sell its taxable products. The agent sells the goods to customers on the manufacturer's behalf.
Section 86 says that, for GST payable on those goods, the agent and principal are jointly and severally liable. The same provision also covers an agent receiving taxable goods on behalf of the principal.
The principal should therefore not assume that appointing an agent transfers all GST responsibility to the agent.
3. Complete statutory structure
Section 86 provides that where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal shall be jointly and severally liable to pay the tax payable on such goods under the CGST Act.
| Element | Meaning |
|---|---|
| Agent | A person falling within the statutory concept of agent. |
| Supplies | The agent supplies taxable goods on behalf of the principal. |
| Receives | The agent receives taxable goods on behalf of the principal. |
| On behalf of | A representative principal-agent relationship must exist. |
| Taxable goods | The goods must be taxable goods for the specific provision to operate. |
| Joint and several | Both parties are within the statutory tax-liability framework. |
4. Agent and principal definitions
Section 2(5) defines an agent as a person, including a factor, broker, commission agent, arhatia, del credere agent, auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.
Section 2(88) defines principal as a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
These definitions are the starting point. The commercial label “agent” alone should not decide the GST treatment.
5. Scope of Section 86
| Situation | Analysis |
|---|---|
| Agent supplies taxable goods on behalf of principal | Directly within Section 86, subject to the facts establishing agency. |
| Agent receives taxable goods on behalf of principal | Also expressly covered. |
| Person only provides independent marketing services | The person is not automatically an agent for Section 86 merely because the agreement uses the word “agent”. |
| Exempt/non-taxable goods | The specific Section 86 tax liability must be examined because the section refers to taxable goods. |
Always identify the actual goods, transaction, authority and representative relationship before applying the provision.
6. Agent supplies goods on behalf of principal
This is the common commission-agent model. Manufacturer M appoints A to sell M's taxable goods. A supplies those goods on M's behalf.
Section 86 places both M and A within the joint-and-several liability framework for the tax payable on those goods.
7. Agent receives goods on behalf of principal
The provision expressly covers receipt as well as supply. If an agent receives taxable goods on behalf of a principal, the same statutory liability principle applies.
This is important where an agent operates a warehouse, procurement function, commodity-market operation or other receiving arrangement for the principal.
8. Meaning of jointly and severally liable
“Jointly and severally liable” is a strong statutory expression. It means that the Government is not necessarily restricted to recovering the tax only from the principal or only from the agent.
A private agency agreement can allocate the commercial cost between the parties, but the agreement should not be treated as removing statutory liability imposed by Section 86.
9. Section 86 and Schedule I
Schedule I is important because paragraph 3 contains a principal-agent rule for specified supplies of goods between principal and agent even without consideration.
| Provision | Role |
|---|---|
| Schedule I | Determines when specified principal-agent transactions are treated as supplies without consideration. |
| Section 86 | Creates joint-and-several liability for tax on taxable goods supplied or received by an agent on behalf of the principal. |
These provisions can operate together but answer different legal questions.
10. Invoice responsibility
Section 86 itself does not contain a complete invoice-allocation code. Invoice treatment depends on the nature of the supply, the supplier, registration structure and applicable Rules.
CBIC Circular 57/31/2018-GST explains that the representative character of the relationship is important. It also discusses situations where an agent issues an invoice in the principal's name versus situations where the agent issues an invoice in its own name.
Therefore, invoice format should be analysed with the actual commercial arrangement, not simply from the word “agent”.
11. Representative character
CBIC Circular 57/31/2018-GST uses the concept of representative character in analysing an agency relationship. The crucial question is whether the person is carrying out activities on behalf of the principal in a representative capacity.
What is the agent authorised to do?
Whose goods are supplied or received?
How are invoices and delivery documents issued?
Whose behalf is the transaction actually conducted?
12. Types of agents specifically recognised
The definition in Section 2(5) expressly includes:
The list is not exhaustive. The actual business relationship remains important.
13. Del-credere agent
A del-credere agent can have additional obligations relating to buyer payment/default. Because this model created interpretational questions, CBIC issued Circular 73/47/2018-GST specifically on the principal-agent relationship in the context of del-credere agents.
The existence of a del-credere arrangement does not automatically answer every GST question. The contract, supply chain, invoice structure and separate services must be analysed.
Where the agent separately provides a service to the principal, that service can have its own GST treatment apart from the tax on the underlying goods.
14. Registration
Section 24(vii) provides compulsory registration for persons making taxable supplies of goods or services or both on behalf of other taxable persons, subject to the current statutory framework and applicable exceptions.
This means an agent should not decide registration merely by looking at commission income. The nature of supplies made on behalf of principals must also be considered.
The 2018 corrigendum to Circular 57/31/2018-GST clarified the registration position of commission agents in certain agriculturist situations. The current Section 24 and applicable exemptions should always be checked.
15. Rule 56 records for agents
Rule 56 contains specific record requirements for agents. An agent should maintain records showing, among other matters:
Principal-wise records are particularly important where one agent handles goods for multiple principals.
16. Important CBIC principal-agent circulars
Circular 57/31/2018-GST
Dated 4 September 2018. It clarifies the scope of principal-agent relationships under Schedule I and explains the representative character relevant to agency.
Circular 73/47/2018-GST
Dated 5 November 2018. It addresses principal-agent relationships in the context of del-credere agents.
Corrigendum to Circular 57/31/2018-GST
The November 2018 corrigendum clarified the compulsory-registration position of commission agents, including situations involving agriculturist principals.
17. Related-party valuation connection
Principal-agent arrangements can also create valuation questions, but Section 86 liability should not be confused with valuation under Section 15 and Rule 28.
| Question | Provision to examine |
|---|---|
| Who is liable for GST on covered goods? | Section 86. |
| Whether principal-agent transaction is a deemed supply? | Schedule I. |
| How should value be determined? | Section 15 and valuation Rules where applicable. |
| Whether agent must register? | Sections 22–25, especially Section 24(vii), subject to current law. |
18. ITC and agent/principal
Section 86 deals with tax payable on covered taxable goods. It does not itself determine every ITC consequence.
For ITC, separately identify the recipient, GSTIN on the invoice, receipt of goods, Section 16 conditions, Schedule I treatment and any blocked-credit rule.
19. Construction and infrastructure examples
Material procurement agent
A construction company appoints an agent to procure taxable construction materials. The parties should document whether the agent receives goods on behalf of the principal and how invoices are issued.
Equipment sales agent
A machinery manufacturer appoints a commission agent to sell excavators and construction equipment. The agency agreement, invoice structure, registration and GST reporting should be reviewed.
Mining commodity agent
A mining company uses an intermediary to sell taxable commodities. Principal-wise stock, sales and tax records become critical.
Auctioneer
An auctioneer sells project machinery on behalf of an infrastructure company. The supplier, agency authority, invoice and GST reporting chain should be clearly documented.
20. Detailed practical examples
Example 1 — Commission agent sells taxable goods
Manufacturer M appoints A to sell taxable goods. A supplies them on M's behalf. Section 86 can make M and A jointly and severally liable for GST payable on those goods.
Example 2 — Agent receives taxable goods
A receives taxable goods on behalf of M. Receipt is expressly included in Section 86.
Example 3 — Marketing consultant
A only provides advertising and lead-generation services and never supplies or receives goods on M's behalf. The word “agent” in a contract does not by itself establish Section 86 liability.
Example 4 — Invoice in principal's name
A acts as representative and invoices are issued in M's name. The Schedule I analysis differs from a case where A invoices in its own name; the actual arrangement should be examined.
Example 5 — Invoice in agent's name
A issues an invoice in its own name for goods supplied on behalf of M. The parties should carefully analyse Schedule I, Section 86 and the invoicing Rules.
Example 6 — Del-credere agent
A guarantees buyer payment/default obligations. Circular 73/47/2018-GST should be considered along with the contract and actual transaction flow.
Example 7 — Agriculturist principal
A commission agent sells agricultural produce for an agriculturist. The registration position depends on the principal's status and taxability of the supply; the 2018 clarification is relevant.
Example 8 — Multiple principals
A handles goods for five manufacturers. Principal-wise inventory, invoices, tax and settlement records should be maintained.
Example 9 — Warehouse agent
A receives goods into its warehouse for M. Records should clearly establish whose goods are held and under whose authority they are received.
Example 10 — Principal pays GST commercially
M agrees to discharge GST under the agency contract. This commercial arrangement does not by itself remove the statutory joint-and-several framework of Section 86.
Example 11 — Exempt goods
Where goods are exempt rather than taxable, the specific wording of Section 86 must be examined before treating the transaction as falling within the provision.
Example 12 — Construction equipment auction
An auctioneer sells taxable equipment for an infrastructure company. Supplier identity, agency authority, consideration and GST reporting should be documented.
21. Agency agreement checklist
A robust agreement should make the GST process operationally clear:
An indemnity can allocate commercial risk, but it should not be described as overriding Section 86.
22. Documents to maintain
| Document | Purpose |
|---|---|
| Agency agreement | Establishes the commercial relationship. |
| Principal authorisation | Supports representative character. |
| Invoices | Shows supply documentation. |
| Delivery challans | Tracks physical movement. |
| Principal-wise stock register | Separates goods of different principals. |
| Commission statements | Reconciles remuneration. |
| Returns and tax ledgers | Reconciles GST. |
| Accounts furnished to principal | Supports Rule 56 compliance. |
23. Internal controls
| Control | Purpose |
|---|---|
| Principal master | Maintain GSTIN, agreement and contact details. |
| Principal-wise stock | Prevent mixing of goods. |
| Invoice control | Ensure correct supplier documentation. |
| GST reconciliation | Match sales, receipts and tax payments. |
| Commission reconciliation | Match agent statements with principal books. |
| Registration review | Check Section 24(vii) and applicable exceptions. |
| Contract review | Ensure actual operations match the agreement. |
24. Professional workflow
Read agreement and actual business process.
Check representative character.
Determine taxability.
Supply/receipt and delivery.
Identify invoicing structure.
Analyse deemed supply rules.
Review Section 24(vii).
Apply Section 15/Rules where relevant.
Principal and agent reconcile GST.
Maintain Rule 56 records.
25. Common mistakes
- Assuming Section 86 applies only to commission agents.
- Ignoring the words “supplies or receives”.
- Ignoring the taxable-goods requirement.
- Assuming an agreement can eliminate statutory liability.
- Calling every marketing consultant an agent.
- Failing to maintain principal-wise stock records.
- Not reconciling agent sales with principal books.
- Confusing Section 86 with Schedule I.
- Confusing Section 86 with valuation rules.
- Ignoring compulsory-registration implications.
- Not considering agriculturist-specific registration issues.
- Ignoring del-credere-agent clarification.
26. Legislative and administrative development
| Period | Development |
|---|---|
| 1 July 2017 | Section 86 came into force as part of Chapter XVI of the CGST Act. |
| 2018 | CBIC issued Circular 57/31/2018-GST explaining principal-agent relationships and representative character. |
| 2018 | Circular 73/47/2018-GST addressed del-credere-agent issues. |
| 2018 | A corrigendum clarified the commission-agent registration position in specified agriculturist situations. |
| Current framework | Section 86 remains a concise joint-and-several liability provision read with Sections 2(5), 2(88), Schedule I, Section 24 and Rule 56. |
The GST Council records show that these clarifications were developed because trade and field formations had raised questions about the scope of principal-agent relationships.
27. Section 86 GST FAQs
What is Section 86 of the CGST Act?
It provides that where an agent supplies or receives taxable goods on behalf of a principal, the agent and principal are jointly and severally liable to pay the GST payable on those goods.
Who pays GST — agent or principal?
For goods covered by Section 86, both agent and principal are within the joint-and-several liability framework.
Does Section 86 apply to commission agents?
Yes. Commission agents are expressly included in the definition of agent, subject to the actual facts.
Does it apply to brokers?
Brokers are included in the statutory definition, but the actual representative relationship and taxable-goods transaction must be examined.
Does it apply to del-credere agents?
It can. Del-credere agents are included in the definition, and Circular 73/47/2018-GST provides specific clarification.
Does Section 86 apply to services?
The operative wording of Section 86 specifically refers to taxable goods. The broader definition of agent includes goods or services, but the specific liability provision should not be expanded beyond its wording without examining the applicable law.
Does it apply to exempt goods?
The provision refers to taxable goods, so the taxability of the goods must first be established.
What does jointly and severally liable mean?
It means both parties are placed within the statutory liability framework for the tax payable on the covered goods.
Can an agreement say only the principal will pay GST?
The agreement can allocate commercial responsibility, but it should not be treated as removing statutory liability.
Is every agent covered by Schedule I?
No. Schedule I has its own conditions and should be analysed separately.
Who is a principal?
A principal is the person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
Does an agent need registration?
An agent may be required to register under Section 24(vii) where the statutory conditions are satisfied. Current exceptions should be checked.
What records must an agent maintain?
Rule 56 requires principal-wise records of authorisation, goods/services received and supplied, accounts furnished and tax paid.
Does Section 86 transfer ownership?
No. It is a liability provision; ownership is a separate legal question.
Does Section 86 decide who issues the invoice?
No. Invoicing is governed by the applicable supply and invoicing provisions.
Why is Schedule I important?
It determines specified principal-agent supplies without consideration, while Section 86 establishes joint-and-several tax liability for covered taxable goods.
Why are principal-wise records important?
They allow the parties and department to identify whose goods were supplied/received and reconcile the related GST.
29. Key takeaways
- Section 86 makes agent and principal jointly and severally liable for GST on taxable goods supplied or received by the agent on behalf of the principal.
- The statutory definitions of agent and principal are essential.
- Commission agents, brokers, arhatias, del-credere agents and auctioneers are expressly recognised in the agent definition.
- The actual representative relationship matters; a label alone should not decide the treatment.
- Section 86 specifically refers to taxable goods.
- Schedule I and Section 86 answer different questions.
- Contractual allocation of GST cost does not automatically remove statutory liability.
- Section 24(vii) should be checked separately for registration.
- Rule 56 requires detailed principal-wise records.
- Circular 57/31/2018-GST is important for principal-agent analysis.
- Circular 73/47/2018-GST is important for del-credere-agent arrangements.
- Agency transactions should be separately analysed for supply, valuation, invoicing, registration and ITC.
Reference policy: This article intentionally does not embed external reference hyperlinks. Legal authorities are identified by Act section, Rule, circular and Government material.
Disclaimer: This guide is for practical educational use. Principal-agent GST treatment can be fact-sensitive. Review the current CGST Act, Rules, agency agreement, applicable circulars and judicial decisions before taking action.