Intermediary service is not new concept, The concept was carried forward to GST regime. However from Taxation prospective same is specific status is created by way of Sec 13(8)b under IGST Act for the situation, where either supplier or recipient of the service is located outside India.
Considering the challenges in the intermediary services in cross border transaction, first time GST Conuncil discussed about Intermediary service in its 37th meeting and committee recommended to “provide the IGST exemption on the supply of intermediary services when location of supplier of goods and location of recipient of goods is outside the taxable territory subject to conditions and safeguards prescribed in this regard.
As per the discussion of GSTC, Intermediary service providers are affected as their services to clients abroad are not treated as export of services. This is affecting the competitiveness of exports and affecting the intermediary service. This recommendation is enacted vide Notification No. 20 /2019- Integrated Tax (Rate), dated 30/09/2019
Further to give more clarification on the characteristics of intermediary services and the differences when services are supplied on own account or on sub-contract basis, Circular No. 159/15/2021-GST dated 20.09.2021 was issued.
However, despite of this, there were controversies are continues and several pronouncements are there from various High court,
In case of McDonald’s India Pvt Ltd – Delhi HC – W.P.(C) 11430/2022, the court distinguished service of subsidiary to its holding company from intermediary service and allowed refund of ITC.
In case of M/s Ernst and Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi & Anr. and M/s Ohmi Industries Asia Private Limited v. Assistant Commissioner, CGST, Delhi High court held that Rendering service on behalf of another person does not render the service provider an intermediary.
Even the constitutionally validity of Sec 13(8)b was challenged in Dharmendra M. Jani at Bombay High Court, however Court upheld the constitutional validity.
To end the controversy, The 56th GST Council Meeting recommended a major change in the treatment of intermediary services: the place of supply will now be determined by the recipient’s location, not the supplier’s. This decision directly addresses concerns raised in the Bombay High Court’s Dharmendra Jani case and will have significant implications for exporters and cross-border transactions.
GST Council Recommendation
The GST Council resolved to omit clause (b) of Section 13(8) of the IGST Act 2017, aligning the place of supply for intermediary services with the recipient’s location. This recommendation will help in qualifying for zero-rating and export incentives in case where recipient of service is located outside India, and supplier provide the service in Indian market as well as overseas market.
However this modification will also raise the concern for the overseas intermediary providing the services to Indian recipient and will get qualified for “import of Service” attracting RCM under GST.
Apart from this fate of ongoing litigation are now on toss, are need to wait from the judicial for interpretations on the law.
Conclusion
While the GST Council’s recommendation to shift the place of supply to the recipient’s location is a significant and welcome reform for exporters of intermediary services, stakeholders should closely monitor legislative amendments and judicial pronouncements for clarity on transitional and retrospective issues. This step marks clear progress, but full resolution of all related disputes is still awaited.
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