Intermediary Services under GST: Can the K.C. Overseas Judgment Make the Finance Act, 2026 Omission Retrospective?
It is Suffice to opine that since the time of implementation of GST law, the issue surrounding the tax implications on intermediary service has been heavily litigated across the country. The issue as mentioned was prone to tax implication even under service tax regime, as there had been contrary views regarding determination of place supply in case of service offered by an intermediary. The following article will throw light on the importance of legislative amendment, the date of applicability of the amendment carried out and whether the orders rendered by judiciary, in matters relating to the omitted provision, make such omission apply retrospective?
OMISSION OF SECTION 13(8)(B) OF IGST ACT, 2017.
As far as finance Act, 2026 is concerned, it received presidential assent on 30th day of March 2026, which has managed to put an end to the dispute arising out of the controversial Section 13(8)(b) of the IGST Act, 2017. The omission was carried out via Section 157 of the Finance Act, 2026[1] which reads as follows:
“157. In section 13 of Integrated Goods and Service Tax, Act, 2017, in subsection (8), clause (b) shall be omitted”
The relevant section prior to the amendment, was read as:
“(8) The place of supply of the following services shall be location of the supplier of services, namely: –
(b) Intermediary services.”[2]
In so far as the definition of Intermediary services, it is defined u/s 2(13) of the IGST Act, 2017[3] which reads as follows:
“(13) “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 understand the effect of provision and its subsequent omission, “An Indian Agent ‘X’ acts as an intermediary for a UK based principal. He seeks orders from buyers in India for the company based in UK(Principal) and earns commission in foreign exchange”. In this scenario, prior to the omission, the revenue would interpret Section 13(8)(b) as it is and deem the location of the supplier as India and hence place of supply would be India. This meant that supplies by Indian intermediary to foreign clients were not considered as “export of service” which is defined u/s 2(6) IGST Act. This resulted in reduced competitiveness in export sector as the suppliers such as IT/BPO and other agents became discouraged.
CURRENT STATUS
As on 30th March 2026 onwards, the intermediary services follow the principle set out in Section 13(2) of the IGST Act, 2017 which renders the place of supply as location of recipient of the services. The above-mentioned section is reproduced below for better understanding:
“(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services”[4]
Based on the above, the outward supplies rendered by the Indian intermediary to a foreign client, such activity will safely qualify as export of service (zero rated supply). However, it has to follow the conditions laid down in Section 2(6) of the IGST Act, 2017, which clarifies what qualifies as export of services. The above-mentioned section is reproduced below for better understanding:
“(6) “export of services” means the supply of any service when,-
(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 1[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;”[5]
DATE OF EFFECT OF OMISSION IN ABSENCE OF SAVING CLAUSE:
It is clear that there has been an omission to the abovementioned provision. However, there is no saving clause added to the relevant section of the Finance Act, 2026. In that case, the question that arises is, whether in absence of express saving clause does the omission of Section 13(8)(b) have retrospective effect?
Basis the above paragraphs it is understood that presidential assent to the bill was given on 30th March 2026. But since no express saving clause was added, Section 5 of the General Clauses Act, 1897 comes to the rescue to determine as to when the amendment comes into force. For the ease of reference Section 5 of the General Clauses Act, 1897 is reproduced below:
“5. Coming into operation of enactments. — [(1) Where any Central Act is not expressed to come into operation on a particular day, then it shall come into operation on the day on which it receives the assent, —
(a) in the case of a Central Act made before the commencement of the Constitution, of the Governor-General, and
(b) in the case of an Act of Parliament, of the President.”
Therefore, the Finance Bill 2026 can be considered to have come into operation from 30th March 2026. Furthermore, Section 6 of the General Clauses Act, 1897, explicitly provides for effect of repeal:
“6. Effect of repeal. —Where this Act, or any 4 [Central Act] or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not–
(a) revive anything not in force or existing at the time at which the repeal takes effect; or
(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid; and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”
Based on the above provision, Section 6 of the General Clauses Act provides that when an Act omits or repeals a provision, such as Section 13(8)(b) in this instance, the effect of omission is such that it not intent to eradicate previous effect of such omitted clause. Any rights or liability acquired or accrued, u/s 13(8)(b) of the IGST Act, 2017 or any pending proceedings before court of law. Such proceedings will continue and will be governed as if the provision has not been omitted. Since there is no express words used to make the omission apply retrospectively, the omission operates prospectively from the date of presidential assent. Therefore, only future supplies will get benefit of Section 13(2) of the IGST Act, 2017.
In so far as whether repeal can be inferred as omission? Herein, the Hon’ble Supreme Court of India, has clarified in case of M/s Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise,2016, that “omission” amounts “repeal” u/s 6 of the General Clauses Act, 1897.
DOES KC OVERSEAS JUDGEMENT RENDER THE OMISSION APPLY RETROSPECTIVELY
Based on the understanding drawn from the above-mentioned provisions of law, it is safe to conclude that the amendment brought through Finance Act, 2026 applies prospectively i.e., from the date when president gives assent. That is case because, as already mentioned there is no saving clause added to Section 157 of the Finance Act, 2026. Therefore, omission via the Finance Act, 2026 cannot be applied in retrospect. However, considering the decision of Hon’ble Supreme Court in Union of India vs KC Overseas Education (P). Ltd., 2025, does it render the omission via Section 157 of the Finance Act, 2026 as retrospectively applicable?
For the ease of understanding, in the abovementioned case, the taxpayer was rendering a service on principal-to-principal basis. The consideration was received in convertible foreign exchange. The revenue argued that since the service is provided to principal based out of India, the transaction falls u/s 13(8)(b) of the IGST Act, 2017 as it was existing then. However, the court intervened and declared that service provided by the taxpayer amounts to zero-rated supply and since the service is provided to principal based out of India, location of supplier will be determined as per default rule provided under u/s 13(2) of the IGST Act, 2017, it was considered as export of service. Accordingly, the taxpayer was allowed to seek refund of tax paid on exports u/s 54 of the CGST Act, 2017.
In the above-mentioned decision, the Hon’ble Supreme Court dismissed the appeal filed by the revenue, thereby upholding the decision delivered by the Hon’ble Bombay High Court. Since the said judgement deals with an already existing law. It is a judgment which is declaratory in nature. The intent of the Hon’ble court was to clarify the stance of law as it always was. The judgement does not take upon burden to interpret Section 13(8)(b) and since the core of the matter was to determine the nature of the service provided by the taxpayer therein. Whereas, the Finance Act, 2026 removes the Place of supply rule which was previously enacted u/s 13(8)(b). However, it does not modify the definition of “intermediary”.
In conclusion, it would be a futile attempt to stretch the retrospectivity of a legislation using a judgement rendered by the Apex court. If an attempt is made by any taxpayer to assume a retrospective relief by making use of a judgement, then the taxpayer is unlikely to be successful. It is advised that the export sector await patiently while actively push for a retrospective relief in regard to omission of section 13(8)(b) of IGST Act, 2017, vide Section 157 of the Finance Act, 2026.
Notes:
[1] Section 157 of the Finance Act, 2026, Act No. 4 of 2026.
[2] Section 13(8)(b) of the Integrated Goods and Service Act, 2017, Act No. 13 of 2017.
[3] Supra Id, 2.
[4] Section 13(2) of the Integrated Goods and Service Act, 2017, Act No. 13 of 2017.
[5] Section 2(6) of the Integrated Goods and Service Act, 2017, Act No. 13 of 2017.
Author Bio
