New Delhi, dated the 20th September, 2021<\/p>\n
To,<\/p>\n
The Principal Chief Commissioners\/ Chief Commissioners\/ Principal Commissioners\/
\nCommissioners of Central Tax (All)
\nThe Principal Directors General\/ Directors General (All)<\/p>\n
Madam\/Sir,<\/p>\n
Representations have been received citing ambiguity caused in interpretation of the scope of \u201cIntermediary services\u201d in the GST Law. The matter has been examined. In view of the difficulties being faced by the trade and industry and to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as \u201cCGST Act\u201d), hereby clarifies the issues in succeeding paragraphs.<\/p>\n
2.Scope of Intermediary services<\/strong><\/p>\n 2.1 \u2018Intermediary\u2019 has been defined in the sub-section (13) of section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as \u201cIGST\u201d Act) as under\u2013 \u201cIntermediary 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 2.2 The concept of \u2018intermediary\u2019 was borrowed in GST from the Service Tax Regime. The definition of \u2018intermediary\u2019 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: 2.3 From the perusal of the definition of \u201cintermediary\u201d 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-\u00e0-vis the Service Tax regime, except addition of supply of securities in the definition of intermediary in the GST Law.<\/p>\n 3. Primary Requirements for intermediary services<\/strong><\/p>\n The concept of intermediary services, as defined above, requires some basic prerequisites, which are discussed below:<\/p>\n 3.1 Minimum of Three Parties:<\/strong> 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 \u201carranges or facilitates\u201d another supply (the \u201cmain supply\u201d) between two or more other persons and, does not himself provide the main supply.<\/p>\n 3.2 Two distinct supplies:<\/strong> As discussed above, there are two distinct supplies in case of provision of intermediary services;<\/p>\n (1) Main supply, between the two principals, which can be a supply of goods or services or securities;<\/p>\n (2) 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.<\/p>\n A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service.<\/p>\n 3.3 Intermediary service provider to have the character of an agent, broker or any other similar person:<\/strong> The definition of \u201cintermediary\u201d itself provides that intermediary service provider means a broker, an agent or any other person, by whatever name called\u2026.\u201d. This part of the definition is not inclusive but uses the expression \u201cmeans\u201d and does not expand the definition by any known expression of expansion such as \u201cand includes\u201d. The use of the expression \u201carranges or facilitates\u201d in the definition of \u201cintermediary\u201d 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.<\/p>\n 3.4 Does not include a person who supplies such goods or services or both or securities on his own account:<\/strong> The definition of intermediary services specifically mentions that intermediary \u201cdoes not include a person who supplies such goods or services or both or securities on his own account\u201d. Use of word \u201csuch\u201d 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 \u201cintermediary\u201d.<\/p>\n 3.5 Sub-contracting for a service is not an intermediary service:<\/strong> 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, \u2018A\u2019 and \u2018B\u2019 have entered into a contract as per which \u2018A\u2019 needs to provide a service of, say, Annual Maintenance of tools and machinery to \u2018B\u2019. \u2018A\u2019 subcontracts a part or whole of it to \u2018C\u2019. Accordingly, \u2018C\u2019 provides the service of annual maintenance to \u2018A\u2019 as part of such sub-contract, by providing annual maintenance of tools and machinery to the customer of \u2018A\u2019, i.e. to \u2018B\u2019 on behalf of \u2018A\u2019. Though \u2018C\u2019 is dealing with the customer of \u2018A\u2019, but \u2018C\u2019 is providing main supply of Annual Maintenance Service to \u2018A\u2019 on his own account, i.e. on principal to principal basis. In this case, \u2018A\u2019 is providing supply of Annual Maintenance Service to \u2018B\u2019, whereas \u2018C\u2019 is supplying the same service to \u2018A\u2019. Thus, supply of service by \u2018C\u2019 in this case will not be considered as an intermediary.<\/p>\n 3.6<\/strong> The specific provision of place of supply of \u2018intermediary services\u2019 under section 13 of the IGST Act shall be invoked only when<\/strong> either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India.<\/p>\n 4. Applying the abovementioned guiding principles, the issue of intermediary services is clarified through the following illustrations:<\/p>\n Illustration 1<\/p>\n \u2018A\u2019 is a manufacturer and supplier of a machine. \u2018C\u2019 helps \u2018A\u2019 in selling the machine by identifying client \u2018B\u2019 who wants to purchase this machine and helps in finalizing the contract of supply of machine by \u2018A\u2019 to \u2018B\u2019. \u2018C\u2019 charges \u2018A\u2019 for his services of locating \u2018B\u2019 and helping in finalizing the sale of machine between \u2018A\u2019 and \u2018B\u2019, for which \u2018C\u2019 invoices \u2018A\u2019 and is paid by \u2018A\u2019 for the same. While \u2018A\u2019 and \u2018B\u2019 are involved in the main supply of the machinery, \u2018C\u2019, is facilitating the supply of machine between \u2018A\u2019 and \u2018B\u2019. In this arrangement, \u2018C\u2019 is providing the ancillary supply of arranging or facilitating the \u2018main supply\u2019 of machinery between \u2018A\u2019 and \u2018B\u2019 and therefore, \u2018C\u2019 is an intermediary and is providing intermediary service to \u2018A\u2019.<\/p>\n Illustration 2<\/p>\n \u2018A\u2019 is a software company which develops software for the clients as per their requirement. \u2018A\u2019 has a contract with \u2018B\u2019 for providing some customized software for its business operations. \u2018A\u2019 outsources the task of design and development of a particular module of the software to \u2018C\u2019, for which \u201cC\u2019 may have to interact with \u2018B\u2019, to know their specific requirements. In this case, \u2018C\u2019 is providing main supply of service of design and development of software to \u2018A\u2019, and thus, \u2018C\u2019 is not an intermediary in this case.<\/p>\n Illustration 3<\/p>\n An insurance company \u2018P\u2019, located outside India, requires to process insurance claims of its clients in respect of the insurance service being provided by \u2018P\u2019 to the clients. For processing insurance claims, \u2018P\u2019 decides to outsource this work to some other firm. For this purpose, he approaches \u2018Q\u2019, located in India, for arranging insurance claims processing service from other service providers in India. \u2018Q\u2019 contacts \u2018R\u2019, who is in business of providing such insurance claims processing service, and arranges supply of insurance claims processing service by \u2018R\u2019 to \u2018P\u2019. \u2018Q\u2019 charges P a commission or service charge of 1% of the contract value of insurance claims processing service provided by \u2018R\u2019 to \u2018P\u2019. In such a case, main supply of insurance claims processing service is between \u2018P\u2019 and \u2018R\u2019, while \u2018Q\u2019 is merely arranging or facilitating the supply of services between \u2018P\u2019 and \u2018R\u2019, and not himself providing the main supply of services. Accordingly, in this case, \u2018Q\u2019 acts as an intermediary as per definition of sub-section (13) of section 2 of the IGST Act.<\/p>\n Illustration 4<\/p>\n \u2018A\u2019 is a manufacturer and supplier of computers based in USA and supplies its goods all over the world. As a part of this supply, \u2018A\u2019 is also required to provide customer care service to its customers to address their queries and complains related to the said supply of computers. \u2018A\u2019 decides to outsource the task of providing customer care services to a BPO firm, \u2018B\u2019. \u2018B\u2019 provides customer care service to \u2018A\u2019 by interacting with the customers of \u2018A\u2019 and addressing \/ processing their queries \/ complains. \u2019B\u2019 charges \u2018A\u2019 for this service. \u2018B\u2019 is involved in supply of main service \u2018customer care service\u2019 to \u2018A\u2019, and therefore, \u2019\u2019B\u2019 is not an intermediary.<\/p>\n 5. The illustrations given in para 4 above are only indicative and not exhaustive. The illustrations 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 sub-section (13) of section 2 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 para 3 above, should be kept in consideration<\/p>\n 6. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.<\/p>\n 7. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version will follow.<\/p>\n (Sanjay Mangal)
\nsecurities on his own account.\u201d<\/p>\n
\n\u201cintermediary\u201d 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 \u2018main\u2019 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;\u201d<\/p>\n
\nPrincipal Commissioner (GST)<\/p>\n