GST on Intermediary Services provided in and outside India

Intermediary services under GST has always gained popularity because of the hurdle being faced by the service provider which majorly disables the intermediary service to qualify as export of services. The same is briefly discussed, along with the judicial rulings, in the present article.

Definition of the term ‘intermediary’ [Section 2(13) of IGST Act]-

The term ‘intermediary’ is defined under section 2(13) of the Integrated Goods and Services Tax Act, 2017. The important features of the same are highlighted hereunder-

• An intermediary can be a broker or an agent or any other person;
• An intermediary, who between two/ more persons, arranges/ facilitates the supply of goods or services or securities;
• However, an intermediary doesn’t include the person who supplies the goods or services or securities on his own account.

In simple terms, the person arranging as well as facilitating supplies between two or more persons are covered within the definition of intermediary. However, an independent supplier is not covered.

Place of supply of service in case of intermediary services [Section 13(8)(b) of IGST Act]-

The taxability of any service is determined on the basis of the ‘Place of Supply’ of the said service. Specified service will be taxed as inter-state or intra-state depends on the place of supply of said service.

Provisions of section 13(8)(b) of the IGST Act specifically defines the place of supply of intermediary services. As per the said provision, the location of the service provider will be the place of supply in case of intermediary services.

Intermediary services vis-à-vis export of services-

The term ‘export of services’ is defined under section 2(6) of the IGST Act, 2017. Accordingly, ‘export of services’ means supplies of services that qualifies all the following conditions-

1. The service provider should be located in India;
2. Service receiver should be located outside India;
3. Place of supply of service should be outside India;
4. The payment for the service is received in convertible foreign exchange; and
5. Service provider and service receiver is not merely establishments of distinct persons.

Thus, the following can be concluded, when the provisions of export of services are co-related with the provisions of the place of supply in case of intermediary services-

• For qualifying as export of services, the place of supply of service should be outside India.
• As seen above, in terms of section 13(8)(b) of the IGST Act, the place of supply of service in the case of intermediary service is the location of a service provider. Thus, the service provider being located in India will obviously result in the place of supply of service being in India.
• Resultantly, when the place of supply is in India, the same will not qualify as export of services.
• Thus, even when the intermediary service satisfies all the other conditions of export of services. The same will not qualify as export of services and similarly will not have the benefits of export of services, since it doesn’t satisfy the condition of the place of supply being outside India.

Thus, the contradictory conclusion to above is that even when the recipient of service is located outside India, the intermediary service will be treated as services performed in India because the place of supply will be the location of the service provider i.e. India. Accordingly, such intermediary services provided to service receiver located outside India will be taxable under GST.

Judicial rulings in the matter-

Some of the judicial rulings supporting above conclusion is summarized hereunder-

1. Material Recycling Association of India Vs. Union of India and others -

Honourable Gujarat HC has held that provisions of section 13(8)(b) of the IGST Act read with section 2(13) of the IGST Act are not ultra vires. Further, it is held that intermediary services in cross border transactions will be liable to CGST and SGST. Such intermediary services will not be considered as export.

2. West Bengal authority for advance rulings in the matter of M/s. Global Reach Education Services Pvt. Ltd.-

It is held that in the case of intermediary services, the place of supply will be determined as per provisions of section 13(8)(b) of the IGST Act and not as per provisions of section 13(2) of the IGST Act.

Accordingly, it is held that since the condition specified under section 2(6)(iii) of the IGST Act is not satisfied. Hence, services provided to foreign universities don’t qualify as ‘export of services’ and hence such services are taxable under the GST Act.

Specific exemption available to intermediary services-

Let us look at one of the specific exemption made available to intermediary service vide notification no. 20/2019- Integrated Tax (Rate) dated 30^th September 2019.

Entry no. 12AA of the said notification provides an exemption to the services provided by the intermediary services when the location of supplier and recipient of goods is outside India. In nut-shell, IGST is not payable on intermediary services when both the supplier and recipient of goods are located outside India.

However, for availing the exemption, the intermediary service provider is required to maintain the following documents for a minimum period of 5 years-

• Copy of Bill of Landing;
• Copy of commission debit note raised by the intermediary service provider located in the taxable territory (i.e., India) from the receipt of service located in an non-taxable territory (i.e., outside India);
• Copy of contract executed between the supplier and the recipient of the goods;
• Copy of Certificate of Origin issued by the service recipient located in a non-taxable territory;
• Declaration letter from the intermediary service provider located in the taxable territory, on the company’s letterhead, confirming that the commission debit note raised relates to the contract when both the supplier and the recipient of goods are outside the taxable territory.

Here, it is important to note that the above exemption is available only in the case of movement of ‘Goods’. The same is not available in case of ‘Services’.

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