Introduction: Intermediaries are backbone of trade. They facilitate trade operations and acts as catalysts by enabling hassle free procurement and supply of goods and services across the globe.
However, the taxation mechanism in GST in respect of intermediary services didn’t ease tension of taxpayers where they were engaged in facilitating cross border trade. This was due to the reason that the place of supply (PoS) in respect of Intermediary services is considered as the location of supplier against the general rule which considers the PoS of services as the location of recipient.
Legal Provisions:
In GST, the meaning of term ‘export of services’ is defined under Section 2(6) of IGST Act, 2017 Act as a supply of service when all following conditions are met:
- the supplier is located in India;
- the recipient is located outside India;
- the PoS of service is outside India;
- the payment for such service has been received by the supplier in convertible foreign exchange or in INR wherever permitted by the RBI; and
- the supplier and the recipient are not merely establishments of a distinct person;
Further, Section 16 of the IGST Act, 2017 provides that the export of services shall be treated as zero-rated supplies.
In the above definition of export of services, clause (c) clearly provides that for a service to qualify as export, the PoS shall be ‘outside India’.
The provisions in relation to determination of PoS of service in a case where the location of supplier or the location of the recipient is outside India is governed by the provisions of Section 13 of the IGST Act, 2017. Section 13(8)(b) provides that the PoS in case of intermediary services shall be the location of supplier services.
Further, the meaning of term ‘intermediary’ is defined under Section 2(13) of the IGST Act, 2017, as 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.
Therefore, in a case where a taxpayer acting as an intermediary located in India facilitates a buyer outside India to procure goods or services from India or facilitates a seller outside India to sell goods or services in India, in such cases the PoS of such intermediary services is considered as location of supplier and the supplier is liable to discharge GST on same. In most of the cases, the recipient of intermediary services don’t even agree to pay GST component over and above consideration amount and the intermediary is forced to treat consideration as inclusive of GST and discharge GST accordingly in order to ensure compliance of applicable GST provisions.
Expected Relief:
It is expected that that in case the reform is introduced, Section 13(8)(b) of the IGST Act, 2017 would be removed and general rule would be applicable, if this amendment takes place, the PoS in respect of intermediary services shall be considered as the location of recipient of services. In such a case, the intermediary would be relieved from GST liability and would be entitled to claim refund of ITC accumulated in respect of GST charged on services received for making outward supply of intermediary services.
This reform will in turn boost the morale of the taxpayers and incentivize them financially through reduced tax burden. This reform could also act as a catalyst to boost exports.
Conclusion
Though there exist no formal confirmation in respect of this upcoming reform. However, if introduced, such a reform will ease not only the life of taxpayers but would also aid in reducing a bit of burden from the heavy shoulders of the Judiciary.
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