Section 86 concerns the goods tax, not just the commission
Where an agent supplies or receives taxable goods on behalf of a principal, CGST Act section 86 makes both jointly and severally liable for the tax payable on those goods. Exposure is therefore not automatically capped at the agent’s commission. First establish the actual representative arrangement and the particular goods tax. This article addresses liability and reconciliation, checked on 24 October 2026; it does not recompute Rule 29 value or prescribe a GST rate for unspecified goods.
Keep the statutory scope narrow and accurate
Section 86 in CBIC’s CGST Act text refers to an agent supplying or receiving taxable goods on behalf of the principal. It is not worded as a general rule for every service provider called an agent. Nor does the section itself list interest and penalty in the way some neighbouring liability provisions do. Establish any claim for those amounts under the relevant provision and actual facts rather than copying an all-dues formula into this section.
Joint and several exposure addresses who can be liable for the identified tax; it does not create two identical government debts. Keep one invoice/period-based outstanding-tax ledger linked to the persons concerned. When a payment is validly appropriated against that liability, update the shared reconciliation. A commercial payment between principal and agent is not automatically a statutory discharge; retain the actual tax-payment and appropriation evidence.
Read invoices together with authority and actual conduct
CBIC Circular 57/31/2018-GST dated 4 September 2018 explains representative capacity and the invoice-in-own-name indicator in the context of Schedule I principal-agent goods supplies. It helps organise the factual enquiry, but it is not a substitute for the wording of section 86 or a universal liability ruling for every intermediary. Inspect the contract, authorisation, purchase and sale invoices, goods movement and settlement instructions together.
A distributor buying goods for its own account should not be placed into the section merely because the sales team calls it an agent. A warehouse’s custody is also not conclusive by itself. Conversely, a qualifying representative supply should not be excluded because the agent’s profit-and-loss account records commission rather than gross goods sales. Record the classification and any material contrary evidence before quantifying exposure.
Build three reconciliations instead of one net settlement number
Keep the goods-tax liability, agency-service consideration and cash settlement separately identifiable. Tax payable on the goods is determined under its applicable valuation, rate, supply and timing framework. Commission is a separate service consideration with its own analysis. Netting cash may be commercially permitted, but it should not conceal which invoice tax has actually been discharged.
The ICAI April 2026 bare-law compilation, section 86 confirms the same focused goods-liability wording. Review corresponding State or Union Territory law and the correct tax heads for the transaction; do not label a combined GST figure entirely as CGST. The examples below use stipulated lawfully determined CGST goods-tax amounts, so no illustrative rate is being represented as a current product classification.
Use contracts for recovery protection, without treating them as tax clearance
An indemnity, security deposit, retention or invoice-level confirmation can improve the parties’ private risk allocation. Evaluate the counterparty’s ability to honour it and preserve access to the return and payment evidence. An agent’s commercial credit limit is not automatically its statutory tax exposure ceiling. Likewise, an internal tax-risk reserve is not proof that the return or payment obligation has been met.
Common mistakes include calculating exposure as a percentage of commission, doubling the outstanding tax because two persons are liable, combining different principals’ balances and treating unallocated portal cash as tax paid on a specified goods transaction. Use a joint reconciliation protocol: identify the invoice population, investigate differences, agree documentary follow-up and avoid making a unilateral “paid” flag stand in for evidence.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: Commission is not the liability ceiling
Assume a qualifying agency goods transaction has legally determined CGST of ₹1,20,000 and the agent earns commission ₹20,000. Goods-tax exposure under section 86 is not automatically limited to ₹20,000. The goods tax is six times the commission, but it remains one identified ₹1,20,000 tax debt.
Illustrative example 2: A valid payment reduces the same balance
The relevant CGST goods-tax debt is ₹1,20,000. A supported payment of ₹70,000 is legally appropriated against it. Remaining tax is ₹50,000. Do not continue showing ₹1,20,000 against each person after ignoring the valid payment, or show a combined ₹1,00,000 debt merely because both remain potentially liable.
Illustrative example 3: Multiple principals need separate debt records
For principal A, established tax is ₹80,000 with ₹30,000 discharged: ₹50,000 outstanding. For principal B, tax is ₹60,000 with ₹60,000 discharged: nil outstanding. Total outstanding across these two files is ₹50,000. B’s payment must not also be used to clear A’s unrelated debt.
Illustrative example 4: A security deposit may leave an uncovered commercial risk
Stipulated outstanding section 86 goods tax is ₹2,00,000. The agent holds a recoverable contractual security of ₹75,000. The unsecured internal risk measure is ₹1,25,000. Holding the security does not itself pay the tax; assess enforceability and keep the tax ledger unchanged until actual discharge.
Illustrative example 5: Separate service consideration from goods tax
Goods-tax liability is ₹90,000; the agent’s commission is ₹30,000. An internal settlement draft deducts the ₹30,000 commission from the tax figure and reports ₹60,000 tax outstanding. On the stated facts that deduction has no tax-payment basis: the goods-tax balance remains ₹90,000, with commission tracked separately.
Illustrative example 6: Do not extend the goods wording to a service-only file
A file records ₹10,00,000 of service consideration and no taxable goods supplied or received by the intermediary on behalf of the principal. The service amount does not become a section 86 goods-tax base by its label. The goods population for this particular test is nil; any service-tax liability still requires its own applicable provisions.
Illustrative example 7: Reconcile a closing certificate invoice by invoice
The opening identified goods-tax balance is ₹1,50,000, current-period additions ₹40,000, and verified tax discharges ₹1,00,000. Closing balance is ₹90,000. A certificate saying “all settled” differs by ₹90,000 and needs supporting resolution; it should not silently override the payment ledger.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Establish the actual representative arrangement | Agency authority, contract and conduct analysis. |
| 2 | Identify taxable goods supplied or received on behalf | Goods and invoice population with principal mapping. |
| 3 | Review invoice issuance and receipt evidence | Circular 57 factual assessment, without overextending its scope. |
| 4 | Distinguish own-account distributors and service-only files | Documented classification and contrary evidence. |
| 5 | Validate the underlying tax under its own rules | Value, rate, period, tax-head and supply working. |
| 6 | Create one debt record per identified liability | Principal, agent, invoice and period identifiers. |
| 7 | Verify tax discharges and legal appropriation | Returns, payment references and supporting allocation. |
| 8 | Keep commission and private settlements separate | Service invoices and commercial settlement ledger. |
| 9 | Review security and indemnity effectiveness | Enforceable terms, solvency and access arrangements. |
| 10 | Resolve exceptions before giving clearance | Closing tax bridge, disputed items and responsible follow-up. |
Sixteen practitioner FAQs
1. Does the label “agent” decide section 86?
No. Establish representative activity involving taxable goods on behalf of the principal.
2. Does a commission-only profit-and-loss account eliminate exposure?
No. Inspect the actual goods arrangement and statutory conditions rather than relying on accounting presentation.
3. Is commission the maximum amount recoverable as goods tax?
It is not a statutory ceiling merely because it is the agent’s remuneration.
4. Does section 86 itself cover every service?
Its express transaction wording concerns taxable goods. Analyse services under their applicable provisions.
5. Does a distributor always act on behalf of the supplier?
No. Examine whether it buys and sells for its own account or acts in a representative capacity.
6. Does a warehouse automatically become a liable agent?
Custody alone does not resolve the legal relationship or goods-supply conditions.
7. Why review Circular 57?
It provides official guidance on representative capacity and invoice evidence for Schedule I goods arrangements; retain its stated context.
8. Can the same tax debt be counted twice?
No. Track one underlying debt and the parties potentially liable for its discharge.
9. Does a principal-to-agent cash transfer prove government payment?
No. Obtain the statutory payment and appropriation evidence for the identified liability.
10. Can another principal’s tax payment clear this file?
Do not cross-apply it without a lawful basis and documented allocation.
11. Are interest and penalty automatically included by this section’s words?
Section 86 expressly addresses tax; identify the proper separate basis for any additional amount claimed.
12. Can a security deposit replace tax payment?
No. It is private protection until applied through a legally effective process.
13. Does an indemnity make the agent immune from proceedings?
Do not assume so. It addresses contractual recovery between parties, subject to its terms and enforceability.
14. Can commission be netted from the goods-tax debt?
Not just because the commercial settlement is net; show the legal basis for every reduction of tax.
15. Should a total GST amount be labelled entirely CGST?
No. Maintain the correct tax-head and jurisdiction breakdown.
16. What makes a closing confirmation reliable?
An invoice/period bridge tied to valid tax discharges, with disputes and unmatched items expressly identified.
Conclusion
Establish the goods relationship, quantify the correct tax and reconcile one shared debt. Treat commission and private recovery arrangements as separate commercial controls.