Who is an intermediary?
In the terms of section 2(13) of 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;
In short, “intermediary” essentially involves 3 or more persons
However, where a person is providing services or supplies goods on his own account to his customers, it cannot be termed as an intermediary in accordance with section 2(13) of IGST Act.
Hence it is clear from the above definition, that there is required to be an arrangement or facilitation of the supply of goods, services or securities. In addition to the definition, in order to qualify as an intermediary; there should be two supplies at any one time:
However, it may be noted that a person acting as an intermediary cannot change the nature of supply provided by person on whose behalf he is acting as an intermediary.
In many countries, including in the EU, the intermediary service whether for goods or services has been based on the place of the recipient.
Many representations were done by industry/consultants that in line with international best practices all services. There was no relief given and the only option for intermediary service provider would have to include the cost of indirect taxes to him to be borne and being the less competitive in the international markets to overcome such competition such Indian intermediaries have to compromise on their profits to be more competitive without having an support from the Governments which they have ignored from years and more to go until the policies have been changed to benefit them to consider intermediary as exports.
The proposed change to term intermediary services as export of services
Rajya Sabha – In the 139th report laid by Department Related Parliamentary Standing Committee on Commerce – Impact of Goods and Services Tax (GST) On Exports on 19th December 2017
In para 15 proposed the following amendments for the benefits of intermediaries
The Committee noted that service providers providing services to overseas suppliers of goods earn commission in convertible foreign exchange. IGST @ 18% is leviable on such commission because the Government does not recognize their services as “Export of Services”.
In view of the fact that GST is a destination-based consumption tax, the Committee is of the view that following steps may be taken:
The Government may also cause amendment to section 13(8) of the IGST Act to exclude ‘intermediary’ services and make it subject to the default section 13(2) so that the benefit of export of services would be available.
However, all the three recommendation by the committee are still on the papers and no interests have been taken it taken in the favors of intermediaries. However, there is a hope maybe in 2-3 years such proposed amendments would be effective thereafter intermediary services could be termed as exports as place of supply would be recipient place i.e. outside India.
Why GST should not be levied on Intermediary services?
When the essential character of services provided by service provider to foreign principal/foreign customer is that of commission agent for enabling sourcing or sale of goods such as machine/garments to outside India along with support services. As per the composite supply concept, the principal supply is that of intermediary service.
Therefore, such service to be treated as intermediary services, being services of commission agent for goods covered in section 13(8)(b), and the place of supply of service is location of supplier in India and liable to GST