Clarification on doubts related to scope of “Intermediary”

Due to the ambiguity and difficulties being faced by the trade and industry caused in interpretation of the scope of “Intermediary services” in the GST Law, the Board hereby clarifies the issues.

The concept of intermediary services requires some basic prerequisites, which are discussed below:

• There should be minimum of 3 parties. Two of them transacting in the supply of goods or services or securities and one arranging or facilitating the said main supply.
• There should be 2 distinct supplies. Main supply, between the two principals, which can be a supply of goods or services or securities and Ancillary supply, which is the service of facilitating or arranging the main supply.
• Intermediary service provider to have the character of an agent, broker or any other similar person. It must arrange or facilitate the main supply, and does not himself provides the main supply. Thus, the role of intermediary is only supportive.
• Intermediary does not include a person who supplies such goods or services or both or securities on his own account. in cases wherein the person supplies the main supply, either fully or partly, on principal-to-principal basis, the said supply cannot be covered under the scope of “intermediary”.
• Sub-contracting for a service is not an intermediary service.
• The provision of place of supply of ‘intermediary services’ under section 13 shall be invoked only when either the location of supplier or location of the recipient is outside India.

Our View

Historically, the department has been challenging the export status of ITES entities even though the contracts were on principal-to-principal basis. In fact, even the plethora of advance rulings also suggested that the services provided by back office cannot be export as a bundle. With this circular, we hope the dispute should now be considered as settled.

Nakul Sharma, Audit Associate, SW