FinMin expands ambit of intermediary services

Shishir Sinha New Delhi | Updated on July 19, 2019 Published on July 19, 2019

Many back-offices of MNCs may lose out on export sops under GST law

Multinational companies will need to redefine their back-end support system for the applicability of the Goods & Services Tax (GST) as the Finance Ministry has come out with a new circular on intermediary services.

This circular intends to clarify on issues related to supply of Information technology-enabled services (ITeS) such as call centre and business process outsourcing services and ‘Intermediaries’ to overseas entities under the GST law and whether they qualify as ‘export of services’ or not. It has been emphasised that a supplier of service would not be treated as intermediary, if the services are provided on his own account, despite him qualifying as an agent/ broker. If these are not on his account, the service provider will come under the GST and be required to pay tax at the rate of 18 per cent.

Experts divided

According to Harpreet Singh, Partner with KPMG, though the intention behind issuance of the circular is good, it may not help address the issue of an intermediary. “The debate as to which back-end services constitute support services (during pre-delivery, delivery, post-delivery of supply, post-sales support) and which services qualify as ‘arranging or facilitating the supply of goods or services between two or more persons’ is likely to continue,” he said.

Atul Gupta, Senior Director at Deloitte India, apprehends that this could open the flood gates of litigation. “The distinction between ITeS services and outsourcing services drawn in the Intermediary circular issued by the CBIC is patently incorrect and needs an immediate re-visit, lest it results in hordes of demand notices being issued by GST field formations on outsourcing services,” he said.

Three scenarios

The government has examined three different scenarios, wherein a supplier of ITeS located in India supplies services for and on behalf of a client located abroad, to clarify its treatment under the GST law. In the first scenario, the said circular clarifies, to the relief of the industry, that the provision of back-end services on own account would not come under the ambit of an intermediary. This fortifies the argument that back-office services in general do not fall within the ambit of intermediary services.

On the flipside, the clarification provided in the second scenario furthers the recent ruling by the Maharashtra Appellate Authority of Advance Ruling (‘AAAR’) in the case of Vservglobal Private Ltd. In the said ruling, the AAAR had opined that the services in question (liaising with client’s buyers/suppliers with respect to delivery, transportation of goods and settlement of payment) went beyond back-office support services and were in the nature of facilitation of supply of goods between the client of the applicant and the suppliers/customers of the client. Accordingly, the said services were held to be intermediary services.

The third scenario talks about back-end services on supplier’s 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. It has been clarified that classification of such services as intermediary would depend on the facts and circumstances of each case.

Accordingly, export benefit would not be available in case the second services constitute the principal or main supply.

Published on July 19, 2019
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