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POS - Services in relation to Intermediary services (Where either the supplier or the recipient is located outside India) [ Section 13(8)(b) of IGST Act ] - GST Ready Reckoner - GSTExtract Determination of supply of service in relation to Intermediary services Service in relation to Intermediary services [ Section 13(8)(b) of IGST Act ] S.No. Nature of Supply of services Place of Supply 1 Intermediary services, The location of the supplier of services Examples Example 1:- ABC Pvt. Ltd., New Delhi, Provides support services to foreign customers in relation to procuring goods from India. The company identifies the prospective vendor, reveiws product quality and pricing and then shares the vendor details the foreign customer. The foreign customer then directly place order on the Indian vendor for purchase of the specified goods. ABC Pvt. ltd. charges its foreign customer cost plus 10% markup for services provided by it. In this case, Since ABC Ltd. is arranging or facilitating supply of goods between the foreign customer and the Indian vendor, the said services can be classified as intermediary services. As per section 13(8), the place of supply in case of Intermediary services is the location of the supplier i.e. the location of ABC Pvt. Ltd. which is New Delhi. Example 2:- I am an Indian Company who makes software and sells it outside the country. I have hired a firm (not a related party) C located abroad to facilitate the supply of software in Europe and the USA; would I be liable to pay GST on the payments that I make to this entity abroad? No. In this case, C is covered by the definition of intermediary [section 2(13) of the IGST Act, 2017]. The place of supply of such intermediary service is location of the supplier in terms of section 13(8) of the IGST Act, 2017. As C is located outside India, GST is not payable in this case. [refer the FAQ for GST on IT/ITES Qus.11] Example 3:- I am an agent in India of a foreign IT/ITES provider (principal located outside India). For agency services, I bill the principal in convertible foreign exchange. Whether GST liability arises in this case? You are an intermediary and the place of supply of the service provided by you to the principal is in India irrespective of the mode of payment. Hence, GST is payable on the services provided by you as an intermediary to the principal. [refer the FAQ for GST on IT/ITES Qus.13] Example 4:- Would intermediary services provided to an off-shore client and services provided by a banking company to its offshore account holders be treated as an intra-State supply or an inter-State supply for payment of GST? Under clause (b) of Section 13(8) of the IGST Act, 2017 the place of supply of such services is the location of the provider of services. As the location of supplier and place of supply are in same State, such supplies will be treated as intra-State supply and Central tax and State tax or Union territory tax, as the case may be, will be payable. [refer the FAQ on on Banking, Insurance and Stock Brokers Sector Qus.25] Example 5:- Are services supplied by a bank to its branch/head-office outside India, which are neither intermediary services nor services to account holders, taxable under GST? GST is a destination based consumption tax. Such services provided by a bank or the branch of a foreign bank in India to its offshore branch/head-office, which are neither intermediary services nor services to account holders, are inter-State supply of services between distinct establishments [as per Section 7(5)(a) read with Explanation to Section 8 of the IGST Act, 2017], and will be taxable in India, as the location of the supplier is in India and the place of supply is outside India. Such services will not be treated as exports in view of the sub-clause (v) of Section 2(6) of the IGST Act, 2017 read with Explanation 1 to Section 8 of the IGST Act, 2017. [refer the FAQ on on Banking, Insurance and Stock Brokers Sector Qus.54] Example 6:- Do stock brokers fall in the definition of intermediary under Section 2(13) of the IGST Act, 2017? Yes. Since stock brokers arrange the supply of securities between two or more persons, stock brokers would be covered by the definition of intermediary . [refer the FAQ on on Banking, Insurance and Stock Brokers Sector Qus.82] Example 7:- What will be the place of supply of services in case of stock brokers? In case of stock broking, the details of the address of the client are required to be updated with the Stock Exchange as part of the Unique Client Code details. Therefore, in case of domestic supplies of such services, address on record with the stock brokers shall be the location of the recipient of services in terms of Section 12(12) of the IGST Act, 2017. However, in cases where the location of the recipient is outside India, the place of supply shall be determined as per Section 13(8) of the IGST Act, 2017 i.e. as an intermediary. [refer the FAQ on on Banking, Insurance and Stock Brokers Sector Qus.81] Example 8:- Stock Brokers deal with clients who are not residents of India like Foreign Portfolio Investors, Non-Resident Indians, Persons of Indian Origin, etc. Will brokerage earned from such clients who are not resident in India qualify as export of service under Section 2(6) of the IGST Act, 2017? The stock broker being an intermediary, this situation shall be covered under the provisions of Section 13(8)(b) of the IGST Act, 2017 which provides that the place of supply shall be the location of the supplier of services. Thus such a supply will be treated as an intra-State supply and would be subject to Central tax and State tax/Union territory tax, as the case may be. [refer the FAQ on on Banking, Insurance and Stock Brokers Sector Qus.85] Clarification on doubts related to scope of Intermediary ( Circular No. 159 / 15 / 2021 -GST ) Meaning of Intermediary Intermediary has been defined in the section 2(13) of the IGST Act,2017 (hereinafter referred to as IGST Act) as under 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. The concept of intermediary was borrowed in GST from the Service Tax Regime. The definition of intermediary in the Service Tax law as given in Rule 2(f) of Place of Provision of Services Rules, 2012 issued vide notification No. 28/2012-ST, dated 20-6-2012 was as follows: intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account; From the perusal of the definition of intermediary under IGST Act as well as under Service Tax law, it is evident that there is broadly no change in the scope of intermediary services in the GST regime vis- -vis the Service Tax regime, except addition of supply of securities in the definition of intermediary in the GST Law. Primary Requirements for intermediary services The concept of intermediary services, as defined above, requires some basic prerequisites, which are discussed below: Minimum of Three Parties: By definition, an intermediary is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus a natural corollary that the arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. An intermediary essentially arranges or facilitates another supply (the main supply ) between two or more other persons and, does not himself provide the main supply. Two distinct supplies: As discussed above, there are two distinct supplies in case of provision of intermediary services; Main supply, between the two principals, which can be a supply of goods or services or securities; Ancillary supply, which is the service of facilitating or arranging the main supply between the two principals. This ancillary supply is supply of intermediary service and is clearly identifiable and distinguished from the main supply. A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service. Intermediary service provider to have the character of an agent, broker or any other similar person :- The definition of intermediary itself provides that intermediary service provider means a broker, an agent or any other person, by whatever name called . . This part of the definition is not inclusive but uses the expression means and does not expand the definition by any known expression of expansion such as and includes . The use of the expression arranges or facilitates in the definition of intermediary suggests a subsidiary role for the intermediary. It must arrange or facilitate some other supply, which is the main supply, and does not himself provides the main supply. Thus, the role of intermediary is only supportive. Does not include a person who supplies such goods or services or both or securities on his own account:- The definition of intermediary services specifically mentions that intermediary does not include a person who supplies such goods or services or both or securities on his own account . Use of word such in the definition with reference to supply of goods or services refers to the main supply of goods or services or both, or securities, between two or more persons, which are arranged or facilitated by the intermediary. It implies that 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:- An important exclusion from intermediary is sub-contracting. The supplier of main service may decide to outsource the supply of the main service, either fully or partly, to one or more sub-contractors. Such sub-contractor provides the main supply, either fully or a part thereof, and does not merely arrange or facilitate the main supply between the principal supplier and his customers, and therefore, clearly is not an intermediary. For instance, A and B have entered into a contract as per which A needs to provide a service of, say, Annual Maintenance of tools and machinery to B . A subcontracts a part or whole of it to C . Accordingly, C provides the service of annual maintenance to A as part of such sub-contract, by providing annual maintenance of tools and machinery to the customer of A , i.e. to B on behalf of A . Though C is dealing with the customer of A , but C is providing main supply of Annual Maintenance Service to A on his own account, i.e. on principal to principal basis. In this case, A is providing supply of Annual Maintenance Service to B , whereas C is supplying the same service to A . Thus, supply of service by C in this case will not be considered as an intermediary. The specific provision of place of supply of intermediary services under section 13 of the IGST Act shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India. Example 1:- A is a manufacturer and supplier of a machine. C helps A in selling the machine by identifying client B who wants to purchase this machine and helps in finalizing the contract of supply of machine by A to B . C charges A for his services of locating B and helping in finalizing the sale of machine between A and B , for which C invoices A and is paid by A for the same. While A and B are involved in the main supply of the machinery, C , is facilitating the supply of machine between A and B . In this arrangement, C is providing the ancillary supply of arranging or facilitating the main supply of machinery between A and B and therefore, C is an intermediary and is providing intermediary service to A . Example 2:- A is a software company which develops software for the clients as per their requirement. A has a contract with B for providing some customized software for its business operations. A outsources the task of design and development of a particular module of the software to C , for which C may have to interact with B , to know their specific requirements. In this case, C is providing main supply of service of design and development of software to A , and thus, C is not an intermediary in this case. Example 3:- An insurance company P , located outside India, requires to process insurance claims of its clients in respect of the insurance service being provided by P to the clients. For processing insurance claims, P decides to outsource this work to some other firm. For this purpose, he approaches Q , located in India, for arranging insurance claims processing service from other service providers in India. Q contacts R , who is in business of providing such insurance claims processing service, and arranges supply of insurance claims processing service by R to P . Q charges P a commission or service charge of 1% of the contract value of insurance claims processing service provided by R to P . In such a case, main supply of insurance claims processing service is between P and R , while Q is merely arranging or facilitating the supply of services between P and R , and not himself providing the main supply of services. Accordingly, in this case, Q acts as an intermediary as per definition of section 2(13) of the IGST Act. Example 4:- A is a manufacturer and supplier of computers based in USA and supplies its goods all over the world. As a part of this supply, A is also required to provide customer care service to its customers to address their queries and complains related to the said supply of computers. A decides to outsource the task of providing customer care services to a BPO firm, B . B provides customer care service to A by interacting with the customers of A and addressing / processing their queries / complains. B charges A for this service. B is involved in supply of main service customer care service to A , and therefore, B is not an intermediary. Note:- The above example are only indicative and not exhaustive. The example are also generic in nature and should not be interpreted to mean that the service categories mentioned therein are inherently either intermediary services or otherwise. Whether or not, a specific service would fall under intermediary services within the meaning of section 2(13) of the IGST Act. would depend upon the facts of the specific case. While examining the facts of the case and the terms of contract, the basic characteristics of intermediary services, as discussed in primary requirement above, should be kept in consideration. Exemption intermediary services with effect from from 01 October 2019 [ Notification No. 9/ 2017 -Integrated Tax (Rate ) dated 28 Jun 2017)] as amended. Entry No. Heading Description of services 12AA Heading 9961 Services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory. Following documents shall be maintained for a minimum duration of five years : 1) Copy of Bill of Lading 2) Copy of executed contract between Supplier/Seller and Receiver/Buyer of goods 3) Copy of commission debit note raised by an intermediary service provider in taxable territory from service recipient located in nontaxable territory 4) Copy of certificate of origin issued by service recipient located in nontaxable territory 5) Declaration letter from an intermediary service provider in taxable territory on company letter head confirming that commission debit note raised relates to contract when both supplier and receiver of goods are outside the taxable territory ; Note:- The above exemption will applicable only on intermediary services read with ( Circular No. 159 / 15 / 2021 -GST ).
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