The controversy over the imposition of Goods and Service Tax on intermediaries has surfaced again, the Gujarat High Court is planning to relook at the controversy.
The issue is whether some Indian units or BPOs of multinational companies are actually supplying or exporting services. As per GST, if exports are not made then the framework should be taxed at 18% and if they are treated as exports it would become a zero rated supply.
The Gujarat High Court has in the case of Material Recycling Association of India Vs Union of India in July this year, had held that it cannot be said that the provision of Section 13(8)(b) r.w. Section 2(13) of the IGST Act,2017 are ultra vires or unconstitutional in any manner. Accordingly supply of services by intermediaries outside India is not export and that 18% GST should be levied on that.
It may be noted here that as per Section 13(8)(b) of the IGST Act, 2017, the place of supply in case of intermediary services is the location of supplier of services. Accordingly in case the intermediary is located in India and recipient is located outside India, the place of supply will be location of intermediary and thus such a transaction cannot be regarded as export of services.
It may be noted here that term intermediary has been defined under Section 2(13) of the IGST Act, 2017 as under:
(13) ―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;
Due to above provisions in the GST law indenting agents (intermediaries) have to pay tax on services rendered to foreign clients but if they open an office abroad like in Dubai, Hong Kong or Sri Lanka, GST won’t be applicable.
The agents exporting services and earning foreign exchange feel they are being penalised for qualifying as “intermediary” under Section 2(13) of the CGST Act. Tax department has been issuing notices to BPOs in this regard.
Many BPOs had thus requested the high court to review its stand. The Court is now planning to accept the review petitions. Though Gujarat High Court had earlier ruled that the provisions are constitutional but the court would now relook the issue.
This favourable ruling would the be a big positive for intermediaries and BPOs and several other captive units of multinationals say tax experts.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
