GST on intermediary service, Goods and Services Tax - GST

[Kavali Ramanjeneyulu]

One Indian Company is a subsidiary company of a Singapore company . Singapore company manufactures Pharmaceutical packaging products and sells in India. Indian company provides marketing services like obtaining purchase orders / sales requirements from the Indian customers and forwarding the same to Singapur Company, Pursuing payments from the Indian Customers and coordinating to settle issues between the Singapore Company and Indian Customers. For providing this activity, the Indian Company receives consideration in foreign currency on the basis of Operating cost + Mark up i.e 100+15% every month. The Indian Company has provided the above service under LUT claiming it as export of service. In this request , I request clarification on the following query.

1. Since the Indian Company is located in India and providing marketing services to Singapore Holding company, whether it can be considered as Intermediary?

2. If the Indian Company is considered as Intermediay , whether it is liable to pay GST on the marketing services as both Location of service provider and place of supply fall in India ?

Please provide clarification along with legal provisions and any Advance Rulings/case laws .

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

According to Section 2 (13) of IGST Act, 2017, "“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."

In your case Indian company provides marketing services like obtaining purchase orders / sales requirements from the Indian customers and forwarding the same to Singapore Company. Since you are not importing the goods from Singapore and supply to Indian customer on your own account you are an intermediary as per the above definition. You are procuring orders from the Indian customers and forwarding the same to Singapore company. They directly export the goods to Indian customers. The commission earned by you is in convertible foreign exchange. But since the service of procuring orders and forwarding the same to Singapore takes place in taxable territory, that is India, you are liable to pay gst on the total payment received by you. If the customer is within the same State of Indian Union then you have to pay CGST+SGST. If the customer is located in a different state other than the State in which you are located you have to pay IGST,

[Surabhi Parihar]

Dear Sir,

On reading the facts of the case, it is apparent on the face of it that you are providing intermediary services wherein the POS shall be treated as India and accordingly GST liability is to be discharged. Since the definition of "intermediary" has not changed much pre and post GST, I would like to rely on a few rulings by Hon'ble CESTAT and High Court -

Paul Merchants Ltd. Vs. CCE Chandigarh 2012 (12) TMI 424 – CESTAT (Delhi-LB) - “It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service.”

Also to determine who is the actual recipient of supply reliance can be made on the Delhi HC decision of Verizon Communication India Pvt. Ltd. Vs. Assistant Commissioner of Service Tax, Delhi 2018 (8) GSTL 32 (Del.) - = 2017 (9) TMI 632 - DELHI HIGH COURT The ‘recipient’ of the service is determined by the contract between the parties and by reference to (a) who has the contractual right to receive the services; and (b) who is responsible for the payment for the services provided (i.e., the service recipient).

Thus relying on the understanding in the above rulings, you can establish and argue that since you are only providing marketing services to the Singapore holding company, there is no privity of contract between the Indian company and the customers of holding company, the customers in India are only users of services that you render and not the actual recipient of service. Thus, there are only two parties i.e. the Indian company and the holding company, in that case the service can be rightly considered as export of service and POS would be outside India.

PS: This can be a view taken aggressively to establish that you are exporting services. Otherwise, on the face of it the service appears to be one of intermediary and GST is liable to be discharged.

[KASTURI SETHI]

One case pertaining to Service Tax era

This very issue was decided by the CESTAT, New Delhi in favour of the assessee in the case of Microsoft Corporation of India Pvt. Ltd. Vs. Commissioner, ST, New Delhi reported as 2014 (36) S.T.R. 766 (Tri. - Del.) = 2014 (10) TMI 200 - CESTAT NEW DELHI (LB) holding such service as export of service but the department challenged this order and filed civil appeal with with the Supreme Court on 10.7.15 which is still pending decision.[Commissioner v. Microsoft Corporation (I) Pvt. Ltd. - 2015 (39) S.T.R. J310 (S.C.)] = 2015 (7) TMI 1330 - SC ORDER

Definition of 'Intermediary' is same under IGST Act as compared to Service Tax period.In both periods the emphasis is on the phrase, "does not include a person who supplies such goods or services or both or securities on his own account;

Under GST, the services provided by Indian subsidiary company to holding company located outside India does not qualify for 'export of service' in terms of Section 2(6) v) of IGST Act, "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;".

Thus Both are not two separate legal persons.

Query-wise reply is as under:-

1. Yes.

2.Yes.

[Alkesh Jani]

Shri

Hope the decision of the Gujarat High Court held as under

Intermediary Service
"Therefore, this being a consistent stand of the respondents to tax the service provided by intermediary in India, the same cannot be treated as “export of services” under the IGST Act,2017 and therefore, rightly included in Section 13(8) (b) of the IGST Act to consider the location of supplier of service as place of supply so as to attract CGST and SGST...."
HC-Gujarat

Hope this may be of your help