Intermediary Services to Overseas Clients Under GST

‘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 on his own account ( Section 2(13) of IGST Act.).

An intermediary is involved with two supplies at any one time:

(a) The supply between the principal and third party

(b) Agency services to principal for which he charges a fee or commission

3. Guiding Principles for intermediary Services : Following factors need to be considered to determine whether a person is acting as an intermediary or not:—

Nature and value : An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal. Further , the principal must know the exact value at which the service is supplied on his behalf

Consideration for intermediary Services:. The services to the principal  can be based on an agreed percentage of the sale or purchase price. The amount charged by an agent from his principal towards such supplies is referred to as “commission”.

Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable.

Place of Service : In case of intermediary services, the place of supply shall be the location of the supplier of service – section 13(8)(b) of IGST Act.

3. Services provided by the following persons will qualify as ‘intermediary services’:-

(i) Travel Agent (ii) Tour Operator (iii) Stockbroker (iv) Commission agent (v) Recovery Agent.

4. Further , Based on Advance Rulings given at time to time , it can be inferred  whether the particular  services  to overseas clients falls under the definition of Intermediary services or not . Details of such services are brought out in succeeding Paragraphs .

5. Following Services to Overseas Clients are Intermediary Services :

5.1 Promotion of Products on Commission   Promotion and marketing services in relation to product of overseas client on commission basis qualifies as ‘intermediary service’. In case of  Toshniwal Brothers In re (2019) (AAAR – Karnataka) it was held that pure promotion and marketing services are intermediary services.

5.2 Accounting and Payroll Service  Accounting support services, payroll processing and maintenance of employee records is considered as facilitation of  supply of goods and/or services between client and customers of clients. In  case of  Vserv Global (P.) Ltd., In re [2018] (AAR – Maharashtra), Applicant was providing back office administrative and accounting support services, payroll processing and maintenance of employee records to overseas clients. Orders for supply of said services were received by applicant in its Mumbai office and also services were executed from its office situated in Mumbai India. It was held that since applicant arranges/facilitates supply of goods or services or both between overseas client and customers of overseas client, applicant is clearly covered and falls in definition of ‘intermediary’.

5.3 Promotion of  foreign University course in India  : In Global Reach Education Services (P.) Ltd., In re [2018] (AAAR-West Bengal), appellant was promoting courses of foreign university in India. The activity was to find suitable prospective students to undertake courses, and, in accordance with university procedures and requirements, assisting in recruitment of suitable students. It was held that, appellant is to be considered as an intermediary in terms of section 2(13) of IGST Act.

5.4 Backend Support Services – Backend 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 and other services, etc. will be ‘intermediary services’ in terms of section 2 (13) of  the IGST Act as these services are merely for arranging or facilitating the supply of goods or services or both between two or more persons.

5.5 Services supplied by liaison office in India : The liaison office in India does facilitate the supply of goods or services or both of its parent company which is outside India, and hence falls within the definition of ‘intermediary’

5.6 Services supplied by liaison Office  outside India – An Indian parent company may have liaison office outside India. The Indian parent company will remit amount to liaison office outside India. In that case, that liaison office is ‘intermediary’.

5.7 Recruitment Services  to Foreign University  In Global Reach Education Services (P.) Ltd. In re [2018] (AAR-West Bengal), Applicant was facilitating recruitment/enrolment of students to foreign Universities and was paid consideration in form of Commission. The payment of commission  was paid as a percentage of tuition fee collected from students enrolled through applicant. It was held this is ‘intermediary service’

6. Following Services to Overseas Clients are not considered as Intermediary Services   :-

6.1. Management Consultancy Services : It was held in Thomas Joseph Nellissery, in re [2019]  (AAR – Kerala) that Management Consultancy services does not in any way, facilitate or arrange supply of goods or services or both between two or more persons and will not fall within definition of term ‘intermediary’ as per section 2(13) of IGST Act, 2017 .

2. Marketing Support Services to Associate Companies : In AMD India (P.) Ltd. v. CST [2019] (CESTAT), the assessee was providing marketing support services to its associate companies. It was held that the assessee was not facilitating or arranging purchase and sale on behalf of AMD entities outside India. It is not ‘Intermediary service.

3. Service on Principal to Principal basis ; Service provided to foreign Principal on principal to principal basis is not intermediary service. For example, service of marketing consultant is not ‘intermediary service’.

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