Whether professional services provided by Indian branch on behalf of an overseas parent company to its overseas client be classified as “intermediary services”

• The petitioner is an Indian Branch Office of M/s Ernst & Young Limited, UK and has entered into service agreements for providing professional consultancy service to various entities of Ernst & Young group (hereafter ‘EY Entities’) including EY US, EY Australia, EY NZ and EY UK on arm’s length basis.
• Due to rejection of its refund application for input tax credit in respect of export of services for the period from December 2017 to March 2020 as petitioner was treated as “Intermediary” both at adjudication and first appellate, thus, appeal was preferred.
• Adjudicating Authority while rejection application stated that the appellant is providing subsidiary services on behalf of E & Y Ltd., UK in India to its overseas client. In these circumstances, the activities of the appellant are classifiable as ‘intermediary service.

ERNST AND YOUNG LIMITED Vs ADDITIONAL COMMISSIONER, CGST APPEALS -II, DELHI AND
ANR W.P.(C) 8600/2022 HIGH COURT OF DELHI JUDGEMENT DELIVERED ON 23.03.2023

The key factors considered in the judgement are abbreviated below:

• As per Section 2(13) of the 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.
• Thus, even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party.

Judgement: As discussed above, the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of ‘export of services’ as defined under Section 2(6) of the IGST Act.

SW Point of View:

There have been too many diversified rulings on intermediary. However, as GST is maturing so seems to be the courts. The ruling demonstrates the intent of the circular and provisions and focuses on differentiating facilitating vis-à-vis actual supply.

Hrithik Sachdeva, Associate – IDT, SW India