GST Implication on Intermediary Services – Cross Border Transaction
As per Section 2(13) of IGST Act, 2017, “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”.
To determine taxability under GST Law, it is imperative to determine Place of Supply of Services. In this regard, Place of supply for intermediary services shall be governed by Section 13(8)(b) which categorically provides that for intermediary Services, Place of Supply shall be the location of the supplier of services i.e. service provider.
Under GST law, in case location of supplier and place of supply is in the same state, CGST & SGST is applicable. As explained above, since place of supply for intermediary services is location of supplier of services i.e. India and accordingly, CGST & SGST is applicable.
Now the question arises, in case said services are rendered to service foreign entity located outside India, said services would qualify as Export of services or still liable to levy of GST. To answer the same, let us first understand condition of Export of Services as defined under Section 2(6) of IGST Act, 2017, as under:
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India]; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
Basis above, to avail benefit of Export of services under GST law, place of supply of services shall be outside India. However, in case of intermediary services, place of supply shall be location of supplier of services i.e. India, even though all other conditions are met, GST would be applicable.
Practical difficulties faced by Industry
To determine whether Services are intermediary or Marketing/Support services, precise nature of services, manner of flow of consideration and other factors are important. Certain services such as product sales support, assisting in negotiations with supplier or customer, etc. which include facilitation between two parties are intermediary services whereas rendering marketing support or business promotion services, advertisement of product, etc. on his own account by service provider are different in nature.
In case cross border transaction, place of supply for any services which are in the nature of intermediary services was liable to levy of GST and tax so charged by Indian Service Provider is a Tax cost in the hands of foreign services recipient located outside India.
Since government has proposed the omission of clause (b) of Section 13(8) of the IGST Act, 2017. Going forward, place of supply of said services would be governed as per general rule i.e. location of recipient of services and intermediary services rendered to foreign recipients would now qualify as export of services, subject to fulfilment of the certain prescribed conditions.
Proposed change will have a long-lasting impact on Industry as a whole. This reform will not only benefit foreign entities procuring intermediary services, but also benefit Indian service provider who can now claim refund of GST Input Tax credit availed and utilised for rendering export of services, subject to Section 54 of CGST Act, 2017 read with Rule 89 of CGST Rules, 2017.
Disclaimer : This document is intended solely for general informational purposes. It does not constitute a legal opinion, tax advice, or a formal interpretation of law. The applicability of GST provisions may vary depending on specific facts and circumstances. Readers are advised to seek professional consultation before taking any action based on the information provided herein.