GST Charcha: Whether Intermediary Services are export of Services?
By: – Bimal jain
Goods and Services Tax – GST
Dated:- 23-7-2018
GST Charcha: Whether Intermediary Services are export of Services?
Though, it has been a year since the implementation of GST, yet there are some problems which require immediate attention of the government to clarify, one of such dubious issue is 'place of supply' of intermediary services for the chargeability of GST.
It is a general trade practice for the Indian entities to provide intermediary services to the recipient located outside the Indian territory. This GST Charcha aims to determine whether the 'supply of services' by the intermediaries to the recipients located outside India amounts to export of services or not?
Intermediary services
Before proceeding with the issue at hand, it is important to understand the meaning of 'intermediary' first. Under Section 2(13) of IGST Act, 2017 (“IGST Act”), 'intermediary' has been defined to
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yet under the Act these terms have been put together under one umbrella of 'intermediary'.
Diagnosis of Section 13(8)(b) of the IGST Act
At the start, it must be clarified that the services provided by intermediaries located in India to the recipient located outside India in lieu of fee/commission charged for the said services amounts to 'supply' of services. Now, in order to determine whether the said transaction will be Export of Services and/ or an intra-state supply or inter-state supply, the 'place of supply' of such services must be determined.
Section 13 of IGST Act determines the place of supply of services where either the location of supplier or the location of recipient is outside India. Here, default Section 13(2) provides that the 'place of supply' shall be the 'location of the recipient' unless the services falls within the ambit of specified sections from 13(3) to 13(13) of the IGST Act.
In pursuance of Section 13(8)(b) of the IGST Act, the place of supply in case of
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has been received by the supplier of service in convertible foreign exchange; 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
Therefore, going by the strict interpretation of Section 13(8) of IGST Act, the supply of services by the Intermediaries to the recipients outside India are not export of services.
Recent Judicial Advance Ruling:
Global Reach Education Services Pvt. Ltd: In this case, the applicant was promoting the foreign university and was helping them in enrolling Indian students. In providing the promotional services, the promotional company was charging commission/fee from the foreign university. In this very case, the authorities found that the Indian representative was an intermediary acting as an independent representative. Citing Section 13(8)(b) of the IGST Act, the Hon'ble West Bengal Advance Ruling Authority ruled that the place of supply shall be th
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e and Stock Brokers Sector released by the Central Board of Indirect taxes and Customs, the query before department was whether the intermediary services provided by a banking company to its offshore account holders be treated as an intra-State supply or an inter-State supply for payment of GST?
The department answered citing Section 13(8)(b) of IGST Act and responded that “the place of supply of such services is the location of the provider of services. As the location of supplier and place of supply are in same State, such supplies will be treated as intra-State supply and Central tax and State tax or Union territory tax, as the case may be, will be payable.”
The clarification of the department makes it amply clear that the intermediary services provided to an offshore account holder shall be treated to be intra-state supply where the place of supply shall be location of the service provider. Now, the question is whether the said answer as given for this FAQ is correct?
Diagnosis
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T Act, 2017 shall make the said transaction as inter-state supply, which states that
“Supply of goods or services or both, –
……….
c) In the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce”.
Therefore, it may be safely concluded with conjoint reading of Sections 8(2) and 7(5)(c) of the IGST Act that intermediary services given to the recipient outside India by an intermediary in India is an Inter-State Supply.
Economics behind why intermediary services should be termed as export of services:
India has already established its name as one of the leaders in providing intermediary services to foreign recipients of prospective Indian customers. So, it is the responsibility of the government to encourage this major forex earning sector by making the international supply of the Indian intermediary services high
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action. When an Indian recipient imports services from the foreign intermediary service providers, then, this transaction would fall outside the GST ambit as location of supplier and place of supply i.e. location of supplier, both are outside India. Hence, no reverse charge will be applicable in hands of the Indian recipient of intermediary services. This logic also supports the contention of changing place of supply provisions for intermediary services from location of supplier to location of recipient.
Application of Section 13(8) of IGST Act is reducing the Indian forex reserves by making the imports tax free and exports taxable. For instance, when the supplier is in the foreign territory and the intermediary is also located in the foreign territory, but the location of the recipient is in the Indian Territory. Now, if the location of foreign intermediary service provider is made the place of supply, then this transaction will be kept outside the ambit of GST and the consequent tra
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