![](https://gstsamadhan.com/assets/logo/new_logo.png)
Scope of ?intermediary? for ITeS services extended, many may lose export benefit, pay 18% GST
19-Jul-2019
Economictimes
GST,
341 Views
In a circular that will have far-reaching implications on the export and ITeS community, the Government has clarified that anyone engaged in the facilitation of supply of goods/services will not be considered to be engaged in export and will now be considered as intermediary, unless it is on his own account. This would mean service providers engaged in backend services such as placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support services and others will now come under the ambit of GST and may be taxed at 18%.Through the Circular, CBIC has attempted to provide clarifications on applicability of concept of ‘intermediary services’ and its consequent treatment under GST for Information Technology enabled Services (‘ITeS’), Back Office Support services etc.
It has been emphasized that a supplier of service would not be treated as intermediary, if services are being provided on his own account, despite him qualifying as an agent/ broker. Further, the Government has examined various 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 GST and broken it down in to three scenarios.
Scenario 1:
Supplier of service provides ITeS (backend services as enlisted under Rule 10TA(e) of Income tax Rules) on his own account to his clients or customers of his client’s (on client’s behalf).
-
It has been clarified that such service providers would not qualify as intermediary as he is providing services on its own account.
-
Accordingly, the said services may qualify as export of service under GST.
-
The said position would hold good, even if such services are provided to the customers of the client’s, on client’s behalf.
Scenario 2:
Supplier of backend services located in India arranges or facilitates the supply of goods/ services by the client located abroad to the customers of client
-
It has been clarified that such service providers would qualify as intermediary under GST.
-
This shall cover back-end services such as 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 services.
-
The provision of such services is merely for arranging or facilitating the supply of goods or services between two or more persons.
-
Accordingly, export benefit would not be available on supply of such services.
Scenario 3:
Supplier of ITeS supplies back end services (as enlisted under Rule 10TA(e) of Income tax Rules) 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 [i.e. Scenario 1+ Scenario 2]
-
It has been clarified that classification of such services as intermediary would depend on the facts and circumstances of each case.
-
It has to be determined which set of the service (i.e. Scenario 1 services or Scenario 2 services) would constitute as the principal or main supply.
-
Accordingly, export benefit would not be available in case the Scenario 2 services (i.e. 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) would constitute as the principal or main supply.
What it means:
In Scenario 1, the said Circular clarifies, to the relief of the industry, that the provision of back-end services (such as back office operations, call centre services, support centres, payroll, revenue accounting, data processing services etc.) on its own account would not be covered within the ambit of intermediary.
This fortifies the argument that back office services in general do not fall within the ambit of intermediary services, as rightly held under recent rulings pronounced by Maharashtra Authority of Advance Ruling (AAR) in case of M/s NES Global Specialist Engineering Services Pvt. Ltd. and Asahi Kasei India Private Limited.
On a flipside, the clarification provided in Scenario 2 furthers the recent ruling by the Maharashtra Appellate Authority of Advance Ruling (‘AAAR’) in case of M/s. Vservglobal Private Limited. In the said ruling, AAAR had opined that the services in question (which included liaising with client's buyers/suppliers with respect to delivery, transportation of goods, and settlement of payment between them) were much beyond back office support services and were in the nature of facilitation of the supply of the goods between the two parties i.e. client of the applicant and the suppliers/ customers of the Client. Accordingly, the said services were held to be intermediary services.
"Until now, general marketing, responding to enquiries of customers of overseas group entities, providing post-sales support etc. while facilitating between overseas group companies and Indian customers, were generally not considered as intermediary services, and hence benefit of exports was being claimed. This position would now need to be re-visited in light of Para 5.2 of the Circular.” said Harpreet Singh, Partner in KPMG India.
The fear now is that the Circular would continue to fuel the debate as to which back-end services constitute as support services (during pre-delivery, delivery, post-delivery of supply, post sales support) and which services would qualify as ‘arranging or facilitating the supply of goods or services between two or more persons’.
It is important to note that a lot of MNCs have trading houses in India to facilitate general marketing. With this circular it may not qualify as exports and get charged at 18%. In fact the trade bodies had recently requested the government to remove the concept of ‘intermediaries’, but the Government has gone ahead and widened the scope of what constitutes as intermediaries. "It is critical for the Government to ensure that Indian back office support services remain globally competitive and we do not lose out work to other countries. Thus, the tax regime needs to conducive” adds Singh.
Source:economictimes
![](https://gstsamadhan.com/control/uploads/news/file_19Jul2019052514.jpg)