Section 86 of CGST explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 86 of the CGST Act, 2017 provides that where an agent supplies or receives any taxable goods on behalf of his principal, the agent and the principal are jointly and severally liable to pay the tax payable on such goods under the Act. It ensures that in a principal-agent arrangement, where the goods economically belong to the principal but the agent physically handles the supply, the revenue can look to either party for the tax.
What Section 86 Says — In Plain English
Section 86 sits within Chapter XVI (Liability to Pay in Certain Cases). In substance it says: when goods move through an agent — a person who supplies or receives taxable goods for a principal — the tax on those goods is a shared responsibility. Both the agent and the principal are on the hook, jointly and severally, so the department does not have to untangle their internal commercial arrangement to collect its dues.
This reflects commercial reality. In many trades, a commission or consignment agent takes physical possession of a principal\'s goods and sells them, sometimes under his own GSTIN. Because the agent controls the goods at the point of supply, but the principal owns them economically, the law deliberately fixes liability on both rather than forcing the department to prove who "really" made the supply. The word "jointly" means both are liable together, and "severally" means each is independently liable for the whole — so the department is never left to argue about apportionment when tax on the goods goes unpaid.
The section is a liability rule, not a charging rule. The charge of GST on the goods arises under the general levy in Section 9 read with the time and value of supply provisions; Section 86 simply widens the net of who can be made to pay that charge. This is why it is placed in Chapter XVI (Liability to Pay in Certain Cases) rather than in the charging chapter of the Act.
Clause / Sub-section Breakdown
- Core rule: Where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal shall, jointly and severally, be liable to pay the tax payable on such goods under the Act.
- Scope limiter: The joint liability is confined to taxable goods — it is not extended to services.
- Read with Schedule I: A supply of goods between a principal and an agent, where the agent undertakes to supply or receive goods on behalf of the principal, is a deemed supply even without consideration.
- Read with Section 2(5): "Agent" is defined widely to include commission agents, del credere agents, consignment agents, brokers and C&F agents who supply or receive goods for the principal.
Applicability & Scope
Section 86 applies specifically to taxable goods supplied or received through an agent — such as a commission agent, del credere agent, consignment agent, or clearing and forwarding agent who undertakes supply on behalf of the principal. It does not extend the joint liability to services; it is confined to goods. The joint and several nature means the department may recover the entire tax due either from the agent or from the principal, without apportioning it between them.
The limitation to goods is deliberate and important. Where a service is supplied through an intermediary, the ordinary rules on who is the supplier apply, and Section 86 does not create an additional joint liability. So a person appointed to render services for a principal — say a marketing or professional services arrangement — is outside Section 86, even if the arrangement is loosely described as an "agency". The section is engaged only when the subject matter passing through the agent is goods, and only when the agent supplies or receives those goods on behalf of the principal within the meaning of the agency deeming fiction.
Worked Examples
Example 1 — consignment agent. Principal Ltd. appoints Ram as a consignment agent to sell its goods. Ram receives stock worth Rs. 10,00,000 from Principal Ltd. and sells it to buyers, raising invoices in his own GSTIN. GST of Rs. 1,80,000 is payable on these supplies. If the tax is not paid, Section 86 allows the department to recover the Rs. 1,80,000 from either Ram (the agent) or Principal Ltd. (the principal), because they are jointly and severally liable. The stock transfer from Principal Ltd. to Ram is itself a deemed supply under Schedule I, and both are accountable for the tax on those goods.
Example 2 — agent receiving goods. Sunrise Foods appoints an agent, Mr. Khan, to procure raw material on its behalf. Mr. Khan receives taxable goods worth Rs. 5,00,000 as agent, on which GST of Rs. 90,000 arises at the principal-agent leg under Schedule I. If that tax is unpaid, the department can proceed against either Mr. Khan or Sunrise Foods for the Rs. 90,000 under Section 86, since the section covers goods both supplied and received through an agent.
Step-by-Step in Practice
- Confirm whether the arrangement is a genuine principal-agent relationship where the agent supplies or receives goods on the principal\'s behalf (a mere broker who does not deal in the goods may not attract Schedule I).
- Register the agent under Section 24, which lists agents among persons compulsorily registrable irrespective of turnover.
- Document the principal-to-agent and agent-to-principal movements of goods as deemed supplies under Schedule I and raise the appropriate invoices.
- Discharge GST on the supplies and maintain separate accounts showing whose tax has been paid.
- Principal periodically verifies the agent\'s GST compliance, since the principal remains jointly liable if the agent defaults.
Common Mistakes & Practical Notes
- Assuming the principal is safe once goods are handed to the agent — the principal stays jointly liable for the tax on those goods.
- Treating the principal-to-agent stock transfer as a non-taxable "internal" movement — it is a deemed supply under Schedule I.
- Extending Section 86 to services — it applies only to taxable goods.
- Agents failing to register under Section 24, which requires agents to register regardless of the threshold.
- Poor record-keeping — agents should maintain clear, separate accounts to show which party discharged the tax.
Timelines & Related Sections
Because the liability is joint and several, there is no sequencing requirement — the department need not first exhaust recovery against the agent before proceeding against the principal, or vice versa. It may recover the whole tax due from either. There is no separate intimation timeline under Section 86 as there is for retiring partners (Section 90) or liquidators (Section 88); the joint liability simply subsists for as long as the tax on the goods remains unpaid.
Section 86 connects to Section 2(5) (definition of agent), Schedule I (deemed supplies between principal and agent), Section 24 (compulsory registration of agents), and the general recovery provisions in Section 79. Within Chapter XVI it sits between Section 85 (transfer of business) and Sections 87 to 94 dealing with other special liability cases.
Recent Amendments & Context
Section 86 itself has not been amended, but the scope of the principal-agent deeming fiction under Schedule I has been the subject of departmental clarification. A CBIC circular clarified that the Schedule I deemed-supply treatment applies only where the agent has the authority to pass or receive title to the goods (i.e., issues or receives the invoice in his own name), and not to a pure commission agent who merely facilitates a supply between the principal and a third party without dealing in the goods himself. That distinction determines when the joint-liability rule of Section 86 actually bites, so it is important to correctly characterise the relationship before applying the section.