Act as a guarantor of credit extended to the buyer. A Del credere agent can act as a combination of a salesperson and an insurance firm. A Del credere agent becomes liable to pay the principal if the buyer made any default on payment. But if principal is unable to collect his payment for other reasons, like dispute over the delivery of the goods, then agent is not liable for payment. Payment paid for any insurance services provided in form of commission, known as a "del credere commission."
Del Credere Agency works as :-
The Del credere agent works as a bridge to connect to both the buyer and seller of the products or services having the interest in the transaction. They guarantee that the buyer will pay for the products of services appropriately. They usually charged higher rates because they take higher amount of risk. A del Credere agent like to work with buyers having a good credit rating or level of solvency to ensure they will consistently pay their bills.
As per the section 15(2)(4) of CGST ACT GST is applicable on interest and penalty on buyer by seller on account of delay in payment regarding supply.
Example: X supplied goods amounting Rs 1, 00,000 (including GST @ 12%) to Y on 01.06.2018 with the condition that he received payment by 30.06.2018 failure of which interest will be applicable.
So, if Y made payment of Rs 1, 00,000 on 31.08.2018 and as a result of which X levies interest of Rs 20,000. Then in this situation X is required to pay GST @ 12% on Rs 2,000 assuming this is received for the goods provided.
In the case, Shreenath Polyplast (P) Ltd (2018) 93 taxmann.com 178 (AAR-Gujarat)
- who is a del credere Agent has submitted application for Advance Ruling. DCA gets the commission from principal for which DCA raises invoices on the principal along with GST.
- The Buyer is unable to pay to the Supplier and approach to del credere Agency to extend short term loan. Thus, DCA extend the loan by making payment to the principal on behalf of customer.
- The rate of interest of such short term transaction based loan is agreed between the buyer and the del credere agent. In some case the customer gives letter of credit which gets discounted by the del credere agent.
- In this case it is also submitted that the Supplier is not continue supply to the customer until the bills are paid by the customer. Since customer arranged the payment through DCA, customer gets un-interrupted supply from the supplier.
- Del credere agent gives loan to the buyer and charged interest thereon from them. Hence it comes under the Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
- Section 15(2)(d) of the CGST Act, 2017 does not apply to the present matter. As interest charged by the DCA is not supplying materials to the end customer but it is for the loan given to the customer as well as it is the principal who is supplying the goods to the customers. As well as the interest charged was not for the delayed payment by the customer. So, it comes under item 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
- Services provided by way of the extending deposits, loans or advances and the payment received presented by the interest or discount (other than interest included in credit card services) is not liable to of Goods and Services Tax.
- The Authority of Advance Ruing in the present case concluded that, transaction of extension of loan by the Del credere agency (herein refer applicant) to the end customer and the payment is received by way of interest, the same is covered under the Entry No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
- It is observed by the AAR, that the extension of short term loan by Del credere Agent to the customer is separate from the supply of goods made by the Principal to the end customer.
- Hence it is exempted from payment of Goods and Services Tax.