Section 86 of CGST Act - Liability of Agent and Principal

Section 86 of the Central Goods and Services Tax Act, 2017 deals with the GST liability of an agent and the principal when taxable goods are supplied or received by the agent on behalf of the principal.

CGST Act reference reviewed: 15 September 2026

Meaning and scope of Section 86

Section 86 is contained in Chapter XVI of the CGST Act, titled "Liability to pay in certain cases". It creates a specific statutory liability where an agent acts on behalf of a principal in relation to taxable goods.

The important consequence of the provision is that the liability is joint and several. Therefore, where the conditions of Section 86 are satisfied, the tax payable on the taxable goods is not confined only to the principal or only to the agent. Both are exposed to the statutory liability prescribed by the section.

Who is an "agent" under the CGST Act?

Section 2(5) of the CGST Act 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.

Thus, merely describing a person as an agent is not by itself the only consideration. The nature of the relationship and whether the person carries on the relevant supply or receipt on behalf of another person are important in applying the statutory definition.

Who is a "principal" under the CGST Act?

Section 2(88) of the CGST Act defines principal as a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.

The definitions of "agent" and "principal" are complementary. The existence and nature of the representative relationship are therefore relevant when considering liability under Section 86.

Conditions for liability under Section 86

On the language of Section 86, the following elements are material:

1. There must be an agent and a principal.
2. The agent must act on behalf of the principal.
3. The transaction must involve the supply or receipt of taxable goods.
4. The taxable goods must be supplied or received by the agent on behalf of the principal.
5. When these requirements are satisfied, the agent and principal are jointly and severally liable for the tax payable on those goods.

What does "jointly and severally liable" mean?

Joint and several liability means that the statutory liability attaches to both the agent and the principal in the circumstances covered by Section 86. The provision is intended to protect collection of the tax payable on taxable goods handled through the relevant principal-agent arrangement.

Whether Section 86 applies in a particular case must nevertheless be determined from the actual arrangement, documents, invoices, authority given to the agent, manner of supply or receipt, and other relevant facts.

Section 86 and Schedule I of the CGST Act

Principal-agent transactions should also be read with Schedule I to the CGST Act. Paragraph 3 of Schedule I deals with specified supplies of goods between a principal and an agent which may be treated as supplies even when made without consideration.

It covers supply of goods by a principal to an agent where the agent undertakes to supply those goods on behalf of the principal, and supply of goods by an agent to the principal where the agent undertakes to receive those goods on behalf of the principal.

Section 86 and Schedule I serve different statutory functions. Schedule I addresses whether specified transactions are treated as supply even without consideration, while Section 86 deals with the liability of the agent and principal for tax payable on taxable goods in the circumstances stated in that section.

CBIC clarification on principal-agent relationship

CBIC Circular No. 57/31/2018-GST dated 4 September 2018 explains the scope of the principal-agent relationship in the context of Schedule I of the CGST Act. The circular emphasizes the representative character of the relationship and examines whether the agent is undertaking the supply or receipt of goods on behalf of the principal.

The circular is particularly useful when determining whether a commercial arrangement actually falls within the principal-agent framework contemplated by the GST law.

Valuation of goods supplied through an agent

Where goods are supplied between a principal and an agent and the transaction is covered by the GST valuation provisions, Rule 29 of the CGST Rules deals with the value of supply of goods made or received through an agent.

Broadly, the rule permits valuation by reference to the open market value or, at the option available under the rule, 90 percent of the price charged for goods of like kind and quality by the recipient to an unrelated customer where the goods are intended for further supply. Where the value cannot be determined by that method, the other prescribed valuation rules apply in the specified order.

Section 86 at a glance

Practical points for agents and principals

• Clearly document the authority and scope of the agency relationship.
• Maintain records showing goods supplied or received on behalf of each principal.
• Ensure that invoices and other GST documents correctly reflect the actual transaction.
• Examine Schedule I where goods move between the principal and agent without consideration.
• Apply the relevant valuation provisions where the supply is between a principal and agent.
• Maintain records required under the CGST Act and CGST Rules for transactions carried out on behalf of principals.

Related provisions of the CGST Act

Section 86 forms part of a group of provisions governing liability to pay tax in particular situations. Readers may also refer to Section 85 - Liability in case of transfer of business, Section 87 - Liability in case of amalgamation or merger of companies, Section 88 - Liability in case of company in liquidation, Section 89 - Liability of directors of private company, and Section 90 - Liability of partners of firm to pay tax.