A large many assessees are engaged in provided services to foreign clients which are in the nature of data processing, back office, market research etc. All these have been under a serious dilemma after few AAR orders issued denying the benefit of export of services under intermediary services concept of GST. Now the CBIC yesterday i.e. 18th July, 2019 have issued a Circular No. 107/26/2019-GST clarifying various aspects.
Intermediary has been defined in the sub-section (13) of section 2 of the Integrated Goods and Service Tax Act, 2017 (hereinafter referred to as “IGST” Act) as under – Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.
The definition of intermediary inter alia provides specific exclusion of a person i.e. that of a person who supplies such goods or services or both or securities on his own account. Therefore, the supplier of services would not be treated as „intermediary‟ even where the supplier of services qualifies to be „an agent/ broker or any other person‟ if he is involved in the supply of services on his own account.
There may be various possible scenarios when a supplier of ITeS services located in India supplies services for and on behalf of a client located abroad. These scenarios have been examined and are being discussed in detail hereunder:-
Scenario 1 :- Supplier provides services on his own account even if on behalf of customer
The supplier of ITeS services supplies back end services as listed in para 4 above. In such a scenario, the supplier will not fall under the ambit of intermediary under sub-section (13) of section 2 of the IGST Act where these services are provided on his own account by such supplier. Even where a supplier supplies ITeS services to customers of his clients on clients behalf, but actually supplies these services on his own account, the supplier will not
be categorized as intermediary.
In other words, a supplier “A” supplying services, listed in para 4 above, on his own account to his client “B” or to the customer “C” of his client would not be intermediary in terms of sub-section (13) of section 2 of the IGST Act.
Scenario 2 :- Client performs supply, supplier arranges or facilitates this supply
The supplier of backend services located in India arranges or facilitates the supply of goods or services or both by the client located abroad to the customers of client. Such backend services may include support services, during pre-delivery, delivery and post delivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.).
The supplier of such services will fall under the ambit of intermediary under sub-section (13) of section 2 of the IGST Act as these services are merely for arranging or facilitating the supply of goods or services or both between two or more persons. In other words, a supplier “A” supplying backend services as mentioned in this scenario to the customer “C” of his client “B” would be intermediary in terms of sub-section (13) of section 2 of the IGST Act.
Scenario 3:- Scenario 1 + Scenario 2 (Then matter to be decided based on what is Principal / Main Supply)
The supplier of ITeS services supplies back end services, as listed above, on his own account along with arranging or facilitating the supply of various support services during pre-delivery, delivery and post-delivery of supply for and on behalf of the client located abroad. In this case, the supplier is supplying two set of services, namely ITeS services and various support services to his client or to the customer of the client.
Whether the supplier of such services would fall under the ambit of intermediary under sub-section (13) of section 2 of the IGST Act will depend on the facts and circumstances of each case. In other words, whether a supplier “A” supplying services listed as well as support services listed in Scenario -II above to his client “B” and / or to the customer “C” of his client is intermediary or not in terms of sub-section (13) of section 2 of the IGST Act would have to be determined in facts and circumstances of each case and would be determined keeping in view which set of services is the principal / main supply.
Author’s Take
Clearly the CBIC has laid a lot of stress on the executional part of supply of services i.e. on own account. It is imperative for assessee’s to clear demarcate their various services among scenario 1,2 and 3. Where it is falls under Scenario 3, you must be able to prove the principal supply from agreement and scope of work.
