Export of Services vs. Intermediary Services under GST: A Comparison Intermediary services under GST have continually gained popularity because of the hurdle being faced by the service wage-earner, which majorly disables the intermediary provision to qualify as an export of services. The same is frequently discussed, along with the judicial rulings; so in this blog, we will discuss the export of services vs. intermediary services under the GST.
Definition of the term 'intermediary' Section 2(13) of IGST Act The term 'intermediary' is defined under section 2(13) of the Integrated Goods and Services Tax Act, 2017. The important landscapes of the same are highlighted hereunder- 1. An intermediary can be a dealer, agent, or any other person;
2. An intermediary, who amid two/ more persons, arranges/ facilitates the supply of goods or services or securities;
3. However, an intermediate doesn't embrace the person who supplies the goods or services or refuges on his own account.
4. In simple terms, the individual placing and facilitating supplies between two or more persons are roofed within the definition of intermediary. However, a sovereign supplier is not covered.
5. Place of stock of service in case of intermediary services Section 13(8)(b) of IGST Act
The taxability of any service is strong minded on the basis of the 'Place of Supply' of the said service. The specified facility will be taxed as interstate or intrastate, depending on the residence that supplies said service.
Provisions of section 13(8)(b) of the IGST Act precisely define the place of supply of intermediary services. As per the said provision, the place of the service provider will be the residence of supply in case of intermediary services.
Suggested Read: Import and Export under GST
Intermediary services vis-à-vis export of services The term' export of services' is distinct under section 2(6) of the IGST Act, 2017. So, 'export of services' means supplies of services that are suitable for all the following conditions-
1. The service wage-earner should be located in India;
2. Service receiver should be positioned outside India;
3. The place of supply of service should be outside India;
4. The payment for the service is established in convertible foreign exchange and
5. Service providers and service receivers are not merely launches of distinct persons.
Thus, the following can be determined when the provisions of export of services are co-related with the provisions of the place of supply in the case of middle services-
For qualifying by means of export of services, the place of supply of service would be outside India.
As seen above, in terms of piece 13(8)(b) of the IGST Act, the place of supply of service in the case of intermediary service is the position of a service provider. Thus, the service provider being located in India will obviously result in the place of supply of service being in India.
As a result, when the supply residence is in India, the same will not qualify as an export of services, thus, even when the intermediary facility satisfies all the other circumstances of the spread of services. The same will not qualify as the export of facilities and similarly will not have the benefits of export of amenities. Subsequently, it doesn't satisfy the disorder of the place of supply being outside India.
Thus, the contradictory conclusion to the above is that when the recipient of the service is located outside India, the intermediary package will be treated as services performed in India because the place of supply will be the place of the service provider, i.e., India. Accordingly, such intermediary services provided to service receivers located outside India will be taxable under GST.
Judicial rulings in the matter 1. Some of the judicial rulings supporting the above conclusion are summarized hereunder
2. Material Recycling Association of India Vs. Union of India and others
3. Honorable Gujarat HC has held that provisions of section 13(8)(b) of the IGST Act read with section 2(13) of the IGST Act stand not ultra vires. Further, it is held that intermediary services in cross-border transactions will be answerable to CGST and SGST. Such intermediary services will not be considered as export.
4. West Bengal authority is responsible for advance rulings in the matter of M/s. Global
Reach Education Services Pvt. Ltd. It is held that in the case of intermediary services, the residence of supply will be determined as per supplies of section 13(8)(b) of the IGST Act and not as per provisions of section 13(2) of the IGST Act.
So, it is held that the condition specified under section 2(6)(iii) of the IGST Act is not satisfied. Hence, services on condition that to foreign universities don't qualify as 'export of services,' and hence, such services are accessible under the GST Act.
Specific exemptions available to intermediary services Let us look at one of the precise exemptions made available to intermediary services vide notification no. 20/2019- Integrated Tax (Rate) dated 30th September 2019.
Entry no. 12AA of the said announcement provides an exemption to the service area provided by the intermediary amenities when the location of the supplier and recipient of goods is outside India. In a nutshell, IGST is not payable to middle services when both the supplier and recipient of goods are located outside India.
However, to avail of the exemption, the middle service provider is required to maintain the following documents for the smallest period of 5 years-
Copy of Bill of Lading 1. Copy of commission debit note high by the intermediary service provider located in the taxable territory (i.e., India) from the reception of service located in a non-taxable territory (i.e., outside India);
2. Copy of contract executed among the supplier and the recipient of the goods;
3. Copy of Certificate of Origin issued by the service heir located in a non-taxable territory;
4. On the company's letterhead, a declaration letter from the midway service provider located in the taxable territory confirms that the directive debit note raised relates to the contract when both the supplier and the recipient of goods are external to the taxable territory.
Suggested Read: GST on Legal Services under RCM
Conclusion Under GST, an export of stock refers to services or goods supplied from India to an extra country or territory. These transactions are pickled as zero-rated, meaning no GST is charged on the sale, but input tax credits are still accessible.
FAQs 1. What is deemed export of services under GST? Under deemed exports, goods do not bodily leave the country, but even then, are treated by means of exports for tax benefits. Here, the taxpayer can't supply goods under LUT; they have to make payment of the levies, which can be later claimed as a refund either by the supplier or recipient.
2. What is not an intermediary? Services of providing manpower to external clients under an agreement are not intermediary services, and there is no liability to pay for service ... appellants can be branded as that of an 'intermediary' or not, and therefore, whether these services would be tantamount to 'export of service.
3. Is GST applicable on the export of services? Export of goods and services are zero rated underneath GST. Exporters can claim a refund of input tax credit (ITC) of inputs/input services used in the spread of goods/services, subject to fulfillment of prescribed conditions.
Intermediary services under GST have continually gained popularity because of the hurdle being faced by the service wage-earner, which majorly disables the intermediary provision to qualify as an export of services. The same is frequently discussed, along with the judicial rulings; so in this blog, we will discuss the export of services vs. intermediary services under the GST.
Definition of the term 'intermediary' Section 2(13) of IGST Act The term 'intermediary' is defined under section 2(13) of the Integrated Goods and Services Tax Act, 2017. The important landscapes of the same are highlighted hereunder-
1. An intermediary can be a dealer, agent, or any other person;
2. An intermediary, who amid two/ more persons, arranges/ facilitates the supply of goods or services or securities;
3. However, an intermediate doesn't embrace the person who supplies the goods or services or refuges on his own account.
4. In simple terms, the individual placing and facilitating supplies between two or more persons are roofed within the definition of intermediary. However, a sovereign supplier is not covered.
5. Place of stock of service in case of intermediary services Section 13(8)(b) of IGST Act
The taxability of any service is strong minded on the basis of the 'Place of Supply' of the said service. The specified facility will be taxed as interstate or intrastate, depending on the residence that supplies said service.
Provisions of section 13(8)(b) of the IGST Act precisely define the place of supply of intermediary services. As per the said provision, the place of the service provider will be the residence of supply in case of intermediary services.
Suggested Read: Import and Export under GST
Intermediary services vis-à-vis export of services The term' export of services' is distinct under section 2(6) of the IGST Act, 2017. So, 'export of services' means supplies of services that are suitable for all the following conditions-
1. The service wage-earner should be located in India;
2. Service receiver should be positioned outside India;
3. The place of supply of service should be outside India;
4. The payment for the service is established in convertible foreign exchange and
5. Service providers and service receivers are not merely launches of distinct persons.
Thus, the following can be determined when the provisions of export of services are co-related with the provisions of the place of supply in the case of middle services-
For qualifying by means of export of services, the place of supply of service would be outside India.
As seen above, in terms of piece 13(8)(b) of the IGST Act, the place of supply of service in the case of intermediary service is the position of a service provider. Thus, the service provider being located in India will obviously result in the place of supply of service being in India.
As a result, when the supply residence is in India, the same will not qualify as an export of services, thus, even when the intermediary facility satisfies all the other circumstances of the spread of services. The same will not qualify as the export of facilities and similarly will not have the benefits of export of amenities. Subsequently, it doesn't satisfy the disorder of the place of supply being outside India.
Thus, the contradictory conclusion to the above is that when the recipient of the service is located outside India, the intermediary package will be treated as services performed in India because the place of supply will be the place of the service provider, i.e., India. Accordingly, such intermediary services provided to service receivers located outside India will be taxable under GST.
Judicial rulings in the matter 1. Some of the judicial rulings supporting the above conclusion are summarized hereunder
2. Material Recycling Association of India Vs. Union of India and others
3. Honorable Gujarat HC has held that provisions of section 13(8)(b) of the IGST Act read with section 2(13) of the IGST Act stand not ultra vires. Further, it is held that intermediary services in cross-border transactions will be answerable to CGST and SGST. Such intermediary services will not be considered as export.
4. West Bengal authority is responsible for advance rulings in the matter of M/s. Global
Reach Education Services Pvt. Ltd. It is held that in the case of intermediary services, the residence of supply will be determined as per supplies of section 13(8)(b) of the IGST Act and not as per provisions of section 13(2) of the IGST Act.
So, it is held that the condition specified under section 2(6)(iii) of the IGST Act is not satisfied. Hence, services on condition that to foreign universities don't qualify as 'export of services,' and hence, such services are accessible under the GST Act.
Specific exemptions available to intermediary services Let us look at one of the precise exemptions made available to intermediary services vide notification no. 20/2019- Integrated Tax (Rate) dated 30th September 2019.
Entry no. 12AA of the said announcement provides an exemption to the service area provided by the intermediary amenities when the location of the supplier and recipient of goods is outside India. In a nutshell, IGST is not payable to middle services when both the supplier and recipient of goods are located outside India.
However, to avail of the exemption, the middle service provider is required to maintain the following documents for the smallest period of 5 years-
Copy of Bill of Lading 1. Copy of commission debit note high by the intermediary service provider located in the taxable territory (i.e., India) from the reception of service located in a non-taxable territory (i.e., outside India);
2. Copy of contract executed among the supplier and the recipient of the goods;
3. Copy of Certificate of Origin issued by the service heir located in a non-taxable territory;
4. On the company's letterhead, a declaration letter from the midway service provider located in the taxable territory confirms that the directive debit note raised relates to the contract when both the supplier and the recipient of goods are external to the taxable territory.
Suggested Read: GST on Legal Services under RCM
Conclusion Under GST, an export of stock refers to services or goods supplied from India to an extra country or territory. These transactions are pickled as zero-rated, meaning no GST is charged on the sale, but input tax credits are still accessible.
FAQs 1. What is deemed export of services under GST? Under deemed exports, goods do not bodily leave the country, but even then, are treated by means of exports for tax benefits. Here, the taxpayer can't supply goods under LUT; they have to make payment of the levies, which can be later claimed as a refund either by the supplier or recipient.
2. What is not an intermediary? Services of providing manpower to external clients under an agreement are not intermediary services, and there is no liability to pay for service ... appellants can be branded as that of an 'intermediary' or not, and therefore, whether these services would be tantamount to 'export of service.
3. Is GST applicable on the export of services? Export of goods and services are zero rated underneath GST. Exporters can claim a refund of input tax credit (ITC) of inputs/input services used in the spread of goods/services, subject to fulfillment of prescribed conditions.
People Also Ask 1. Why do intermediary services usually fail to qualify as export of services under GST? Because under section 13(8)(b) of the IGST Act, the place of supply for intermediary services is the location of the service provider (India). Since export of services requires the place of supply to be outside India , this condition is not met, so they don’t qualify as exports.
2. What is the key difference between export of services and intermediary services under GST? In export of services , the service is supplied from India to a recipient outside India and the place of supply is outside India, making it zero-rated. In intermediary services , the provider only arranges or facilitates a supply between two parties, and the place of supply is treated as India, making it taxable.
3. Are intermediary services provided to foreign clients taxable under GST? Yes. Even if the recipient is outside India and payment is in foreign currency, intermediary services are taxable in India because the place of supply is the location of the intermediary (India).
4. When are intermediary services exempt from IGST? Intermediary services are exempt under Notification 20/2019 – IT (Rate), entry 12AA , when both the supplier and recipient of goods are located outside India , subject to maintaining prescribed documents like Bill of Lading, contracts, commission notes, and declarations.
5. How do courts view the taxability of intermediary services in cross-border cases? Courts and advance ruling authorities (like in Material Recycling Association of India and Global Reach Education Services Pvt. Ltd. ) have upheld that section 13(8)(b) is valid and that intermediary services in cross-border setups are not exports , but taxable supplies in India .
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