Circular No. 107/26/2019-GST
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, CBIC has issued clarifications on doubts related to treatment of ITeS suppliers as intermediaries or otherwise.
[The ITeS or back end services mentioned in this article shall be as defined under the subrule (e) of rule 10 TA of the Income-tax Rules, 1962 which pertains to Safe Harbour Rules for international transactions, as listed in Annexure I.]
Under GST laws, for a service to qualify as export, one of the conditions is that the place of supply of the services must be outside India.
In case of an intermediary, the place of supply of goods/services has been defined as the location of supplier i.e. the location of the intermediary.
Therefore, if a supplier located in India falls under the definition of intermediary, then the place of supply of services provided by it to all its clients, including foreign clients, is treated as in India. In this case, the condition that the place of supply must be outside India is not met and thus the companies cannot treat the services provided to their foreign clients as “export of services” or avail the export benefits under GST.
Consequent to the AAR ruling of Vserveglobal Pvt. Ltd. last year, there have been doubts in the industry whether all suppliers of Information Technology Enabled Services (ITeS), supplying such back end services to clients outside India shall fall under the definition of intermediary. To remove these doubts, CBIC has released its clarifications which we are going to discuss.
CBIC has clarified that the definition of intermediary inter alia provides specific exclusion of a person who supplies such goods or services or both or securities on his own account. Therefore, the supplier of services would not be treated as “intermediary‟ even where the supplier of services qualifies to be “an agent/ broker or any other person‟ if he is involved in the supply of services on his own account.
[Intermediary has been defined in the sub-section (13) of section 2 of the 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.]
There may be various possible scenarios when a supplier of ITeS services located in India supplies services for and on behalf of a client located abroad. The Board has described three different scenarios to explain the situations under which ITeS supplier shall be treated as an intermediary.
Supplier “A” located in India supplies back end services to his client “B” or to the customer “C” of his client on his own account.
In such a scenario, the supplier will not fall under the ambit of intermediary under sub-section (13) of section 2 of the IGST Act. Even where a supplier supplies ITeS services to customers of his clients on clients’ behalf, but actually supplies these services on his own account, the supplier will not be categorized as intermediary. In other words, a supplier “A” supplying services, as listed in Annexure I, on his own account to his client “B” or to the customer “C” of his client would not be intermediary.
Supplier “A” supplies backend services to the customer “C” of his client “B” where “A” arranges or facilitates supply of goods/services by “B” to “C”.
In such scenario, the supplier of backend services located in India i.e. A arranges or facilitates the supply of goods or services by the client located abroad (B) to the customers of client (C). Such backend services may include support services, during pre-delivery, delivery and postdelivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.). The supplier of such services will fall under the ambit of intermediary as these services are merely for arranging or facilitating the supply of goods or services or both between two or more persons.
This scenario is a combination of scenario I and II.
Supplier “A” supplies backend services to his client “B” under scenario I and also facilitates supplies by his client “B” to its the customer “C” as described under scenario II.
The supplier of ITeS services supplies back end services on his own account along with arranging or facilitating the supply of various support services during pre-delivery, delivery and post-delivery of supply for and on behalf of the client located abroad. In this case, the supplier is supplying two set of services, namely ITeS services and various support services to his client or to the customer of the client. Whether the supplier of such services would fall under the ambit of intermediary will depend on the facts and circumstances of each case and would be determined keeping in view which set of services is the principal / main supply.
The Board has also clarified that supplier of ITeS services, who is not an intermediary in terms of sub-section (13) of section 2 of the IGST Act, can avail benefits of export of services if he satisfies the criteria for export of services as mentioned in sub-section (6) of section 2 of the IGST Act, which reads as under –
―export of services means the supply of any service when,––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8.
1. “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;
(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.