GIST of clarifications vide 3 GST Circulars dated 20.09.2021

Primary Requirements for intermediary services:

1.   Minimum of Three Parties – Supplier, intermediary and recipient.

2. Two distinct supplies – main supply and ancillary supply.

3. Intermediary service provider to have the character of an agent, broker or any other similar person – arrange or facilitate main supply and does not himself provides the main supply.

4.  Does not include a person who supplies such goods or services or both or securities on his own account – No principal-to-principal supply.

5. Sub-contracting for a service is not an intermediary service – Sub-contractor provides the main supply, either fully or a part thereof, and does not merely arrange or facilitate the main supply. He provides main supply on his own account, i.e. on principal-to-principal basis.

However, to determine whether a specific service would fall under the scope of intermediary services, would depend upon the facts of the specific case and the terms of contract. One must keep in mind the above basic characteristics for determining intermediary services.

1. w.e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

2. For availment of ITC on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4)

3. And any ITC availed prior to 01.01.2021, in respect of debit notes, shall be governed under the provisions of old section 16(4).

It is clarified that there is no need to carry the physical copy of tax invoice in cases where an e-invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules and production of the Quick Response (QR) code having an embedded IRN electronically, for verification by the proper officer.

It is clarified that only those goods which are subjected to export duty i.e., on which some export duty has to be paid at the time of export, will be covered under the restriction imposed under section 54(3) from availment of refund of accumulated ITC.

Below Goods would not be covered by the restriction imposed under the first proviso to section 54(3) of the CGST Act for the purpose of availment of refund of accumulated ITC.

1. Goods not subject to any export duty;

2. NIL rate specified in Second Schedule to the Customs Tariff Act, 1975;

3. Fully exempted from payment of export duty by virtue of any customs notification;

4. Those not covered under Second Schedule to the Customs Tariff Act, 1975.

The export of services has been defined in sub-section (6) of the section 2 of the IGST Act 2017 as under:

(6) “export of services” means the supply of any service when,––

(i)…

…

(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; 

Explanation 1 of the Section 8 of the IGST Act provides for the conditions wherein establishments of a person would be treated as establishments of distinct persons thus, an establishment of a person in India and another establishment of the said person outside India are considered as establishments of distinct persons.

Explanation 2 of the Section 8 of the IGST Act provides that a person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory

Definition of “person” as provided under Section 2(84) CGST Act 2017, made applicable to IGST Act vide section 2(24) of IGST Act 2017 includes inter alia a company and any body corporate incorporated by or under the laws of a country outside India.

Thus, it is clarified that a company incorporated in India and a foreign company as per Companies Act, are separate persons under CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.

Therefore, supply of services by a subsidiary / sister concern / group concern, etc. (i.e. a ‘company’ in India as per Companies Act) of a foreign company, to the establishments of the said foreign company located outside India (incorporated outside India), would not be barred by the condition (v) of the sub-section (6) of the section 2 of the IGST Act 2017 for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of IGST Act 2017.

Similarly, the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of IGST Act 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of IGST Act.