consignment sale

Consignment sale under GST regime

Before we delve into the possible impact of GST on consignment sales, we need to be familiar with a couple of definitions, which have been introduced with respect to a consignment sales scenario:

• Agent – means a person, including a factor, broker, commission agent, arhatia, del-credere agent, an 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 – in other words, the consignee. Agents are required to get mandatorily registered irrespective of the threshold limit.
• Principal – means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both. In other words, the consignor.

Now, the key difference, is that as per the GST rules, both agent and principal, although part of the same organisational framework, will be considered as distinct persons as par as taxation is concerned. Thus, if there is a transfer of goods or services between the principal and the agent, GST will be applicable, even if there is no consideration between the two.

Valuation of consignment sales under GST

As per the CGST Act, supply of goods by a principal to his agent even without consideration, is treated as a supply and shall be liable to GST – and thus consignment sales have become taxable under GST. As per GST valuation rules, GST will need to be charged, either on:

• the open market value, OR
• 90% of the sale price charged by the agent to the end customer, at the option of the principal.

However, the agent / consignee can avail input credit of the GST charged by the principal / consignor.

GST on consignment sales

As discussed above, the principal / consignor will need to charge GST from the agent / consignee, which he will pass on the government while filing his returns. Similarly, while selling the goods to the end customer, the agent / consignee should charge GST from the customer, post which he will pass on the collected GST to the government, while filing his returns. In addition, the agent / consignee has to charge GST at 18% on the commission, from the principal / consignor and pass that on to the government as well.

However the relief is, that while paying tax to the government, both principal and agent can adjust the same against their input tax credit and the remaining balance, if any, can be paid through cash.

Potential difficulties

Needless to say, since consignment sales under GST has become a taxable supply, the following difficulties are bound to emerge:

• Working capital of the agent will be blocked as GST needs to be paid at the time of receiving goods from the principal on consignment basis.
• Working capital of the principal too will be impacted, as GST on the commission will need to be paid to the agent.