“Central Board of Indirect Taxes and Customs” has issued a clarification in respect of applicability of GST provisions on the applicability of provisions of GST Laws on the IT enabled services and Intermediary Services. The service sector has evolved as a major stake holder in the GDP of Indian economy. Outsourcing has increased tremendously over a period of last 15 years. Thus many MNC’s have their back end offices in India. This circular provides clarification in respect of services provided by such entities in India.
Information Technology Enabled Services (ITES) encompasses multiple services under its ambit. The term ‘ITES” per-se has not been defined under the GST Laws, and thus the said circular has considered the meaning assigned to “ITES” from the Safe Harbor Rules 1962 [Rule 10TA(e)].
Intermediary services although are not defined, the word “Intermediary” has been defined under the provisions of Section 2(13) of the IGST Act 2017. Thus services provided by such an intermediary would be considered as “Intermediary Services”
The circular primarily has identified as to which services can be considered as “Intermediary Services” and which services are to be classified as “ITES”.
Key Takeaways from the circular:
As per the meaning given in the “Safe Harbor Rules 1962”"Information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely
- (i) back office operations;
- (ii) call centres or contact centre services;
- (iii) data processing and data mining;
- (iv) insurance claim processing;
- (v) legal databases;
- (vi) creation and maintenance of medical transcription excluding medical advice;
- (vii) translation services;
- (viii) payroll;
- (ix) remote maintenance;
- (x) revenue accounting;
- (xi) support centres;
- (xii) website services;
- (xiii) data search integration and analysis;
- (xiv) remote education excluding education content development; or
- (xv) clinical database management services excluding clinical trials,
but does not include any research and development services whether or not in the nature of contract research and development services.
As per Section 2(13) of the IGST Act 2017, 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.
Based on the illustrations provided in the circular, following conclusions can be made
- 1. If a registered person in India provides any of the “ITES” services as mentioned above, “on his own account” ie where he is not acting as a facilitator of services but is involved in provision of service. If such services provided directly to his overseas client, it will be purely a case of ITES services. Where the registered person is acting as an agent/broker of his overseas client and indirectly provides services, to customer of his overseas clients, it will still not be considered as service provided in capacity of an “Intermediary” as the registered person still is involved in provision of service on his own account, this fails to qualify as an intermediary. In such case the service will purely be classified as “ITES” and if the requisites of being an “Export of Service” as defined under Section 2 of the IGST Act are fulfilled, it would also be considered as a “Zero rated supply”. Also in such case benefits available (Refunds) in case of zero rated supply can be sought.
- Where services provided are of nature of agent, broker, or a facilitator of a transaction ie where the registered person in India is only responsible to provide back end support services to facilitate the supply of goods or services he can be considered as an “Intermediary”. In case of such services, he himself is not engaged in the supply of goods or services but only provides back end support in execution of supply amongst other parties. So if the intermediary service provider is located in India, by virtue of Section 13(8), the Place of Supply will be “Location of supplier of services” that means “Location of supplier” and “Place of Supply” both will fall in India and would be inferred as an “Intra state supply”.
- Where, there is a combined transaction involving “ITES” as well as “Intermediary” services, it would be important to note that the taxability will depend upon the nature and facts of the contract. That means as per the principles of the concept of “Composite Supply” the dominant intention of the contracting parties needs to be established. If the dominant intention is concluded to be as per (1) above, it would be considered as a “ITES” contract and all the legal implications would mutatis mutandis apply. If however the dominant intention is as per (2) above, then it would be considered as a contract for “Intermediary Services”.
The circular has provided self-explanatory illustrations, our 3 points are on the basis of these illustrations. Thus we urge the readers to also refer the circular attached herewith for the holistic understanding.
- Disclaimer:The views expressed above are on the basis of our understanding of the provisions of GST Law, Rules and Regulations. The adjudicating authorities, courts may or may not agree with the views expressed above.
In case of ITES services being provided, by a registered person, on his own account, directly to his overseas client or indirectly to the customer of his client, then such service would not qualify as “Intermediary Services”. In this case, since the registered person is providing services on his own account, whether directly or indirectly, he does not qualify to be called as an “intermediary” as defined above. However in such case, he would be able to consider the service so provided as Export of Services ie Zero rated supply.