Intermediary topic is litigated / Check latest ruling on intermediary services/ Whether the service provider will be considered as intermediary service provider? / Does the activity fall under intermediary services? / What are the five checks/tests to be applied in case of intermediary services? / Why do you consider intermediary a subject of concern for companies? / Why is intermediary litigated? / How many parties need to be there for providing intermediary service? Is the service an intermediary service?

The ambiguity around the topic intermediary services is endless with ruling/judgements creating more doubts than providing solutions.

Whenever someone ask about intermediary, we are ought to check the latest ruling to see whether the current situation/activity would fall under the purview of intermediary services. As the old fight from Service Tax law to GST law, between revenue and taxpayer still comes to haunt the intermediaries. In this write-up we will try to understand the most litigated topic intermediary services in an uncomplicated manner.

Intermediary – a person who arranges/facilitates the supply between two persons in common parlance. What is the other name of intermediary? What is the supply involved? How many parties are involved in the activity?

As per Section 2(13) of Integrated Goods and Services Tax (“IGST”) Act, 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.

Service Provider: Intermediary/Agent/Broker;

Service Recipient: Any person (In India / Outside India);

Supply: Facilitation of main supply

Consideration: Commission

Why is Intermediary service an area of concern for taxpayers? Why don’t companies want to be classified as intermediary? Why is it unjust to tax intermediary as per taxpayers?

The Company carrying on business for recipients in non-taxable territory want to buy the reliefs of exports for themselves. If they get classified as intermediary, the place of supply falls in taxable territory by the specific inclusion of intermediary services which many believe to be unjust as the supply is provided to a person outside India and consideration is received in foreign currency.

As per Section 13(8)(b) of IGST Act, the place of the following services shall be the location of supplier of services, namely: –

a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders

b) Intermediary services (Emphasis Applied)

c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month

The moot point being classified as taxable services instead of export of services (zero-rated) which brings the supply liable to GST. Tax treatment by government cannot be said to be unjust because the services become liable to tax. Article 286(2) grants power to Parliament to frame laws to regulate such supplies and accordingly, cannot be said to be unconstitutional. Also, as the service provider is in India there is direct nexus of the services in India.

The vexation being relevant to some extent as Revenue Department brings under the umbrella all transactions with slightest point under the ambit of intermediary services. There are numerous rulings/judgements where the companies are made to pay huge amounts of tax, interest, and penalties due to classification of service as intermediary services at a later stage. It is imperative for companies to capture the transaction as intermediary/non-intermediary at initial stage to avoid litigation.

The dissenting judgement by Bombay High Court in Dharmendra M.Jani Vs Union of India to unfavourable Order by Gujarat High Court in Material Recycling Association of India Vs Union of India and numerous other rulings, brought the need for clarification to stabilize taxation of intermediary service. Circular No. 159/15/2021-GST dated September 20, 2021, lays down five checks for intermediary services: –

1. Minimum of three parties

2. Two distinct supply: –

3. Main Supply- between the two principles i.e. supplier and customer

4. Ancillary Supply- between agent and principle i.e. facilitating the main supply

5. Intermediary service provider to have the character of an agent, broker or any other similar person- i.e. the agent/broker should facilitate the main supply

6. Does not include a person who supplies such goods or services or both or securities on his own account- i.e. a supplier supplying on principle to principle basis; and

7. Sub-contracting for a service is not an intermediary service- Where the main supply is sub-contracted and not facilitated between the customers.


Even after clarification by government, the companies need to check whether they will pass the test laid down by the Circular and draft their agreements with utmost clarity to avoid any litigation.

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February 2024