GST on Indian intermediary services provided to a Foreign Customer, Goods and Services Tax - GST

[Vinay Kunte]

Hello

It is been a practice of most of the learned Consultants to advice the clients to pay CGST+SGST on the Intermediary Services provided by a registered taxpayer to his customers located outside India as of today. but, with the recent judgement of Bombay (Mumbai) high court in the (Writ Petition No. 2031 of 2018 dated June 06, 2023) matter related Dharmendra M. Jani v. Union of India - 2023 (6) TMI 290 - BOMBAY HIGH COURT has held that the provisions of Section 13(8)(b) and Section 8(2) of Integrated Good and Service Tax Act, 2017 ("the IGST Act") are legal, valid and constitutional. However, the said sections are confined to the provisions of IGST Act only and the same cannot be made applicable for the levy of tax on services under the Central Goods and Service Tax Act, 2017 (:the CGST Act") and the Maharashtra Goods and Service Tax Act 2017("the MGST Act")

So kindly guide me to decide now in relevance to the above judgement, whether the taxpayer should now charged IGST as per section 5 of IGST Act or continue to Charge CGST+SGST on the intermediary services provided to his clients located outside India?

Your guidance has always been vary valuable to us. Please give your opinions / views in the matter.

Posts / Replies

[CA ShivKumarBhasin]

Sir, as per my view, since the issue is not settled at the level of Apex Court, the levy of CGST+SGST still prevails.

If at all in future, it gets settled that IGST should have been paid and not CGST+SGST then you may pay IGST and take refund of CGST+SGST paid earlier, in line with section 77 of the CGST Act.

[Amit Agrawal]

As readers at TMI are well aware, through my article published & views shared under discussion forum, it is my constant view that no GST is payable by services provided by an intermediary, located in India to the recipient located located outside India.

I held this view because I feel that despite Section 13 (8) (b) & Section 7 (5) of the IGST Act, 2017, above-said services do not fall either under inter-state supply or intra-state supply.

One may refer to my article published on TMI on following link:

https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=8346

And my views shared multiple views are this discussion forum. For example: Post ar serial No. 9 under Issue-ID: 116950 bearing subject-line as follows: GST on intermediary service

And my reading & interpretation of judgement given by third member G. S. KULKARNI, J., as reported in 2023 (4) TMI 821 - BOMBAY HIGH COURT (i.e. conclusion highlighted in your query) says that 'no GST is payable in subject situation, despite holding that Section 13 (8) (b) of the IGST Act, 2017 is legal, valid and constitutional'.

Needless to say & I am well aware that dispute / issues involved are very complex in nature that it will be ultimately settled only by Supreme Court .... sooner or later.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Three judges of Bombay HC have given three different reasonings & thereby, rulings for GST implications against services provided by an intermediary, located in India to the recipient located located outside India.

They have very different interpretations about constitutional validity, Section 7 (5) & 13 (8) (b) of the IGST Act, 2017 & so on, among them.

Only common conclusion - it seems - is that, all 3 of them ruled that, CGST & SGST is not payable against such services (although for 3 different reasonings).

Interesting time ahead ---- at Apex Court.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

Until the decision of SC is rendered, the decision of the Bom HC will prevail.

In my view, at present the law requires only payment of CGST and SGST, which levy has been held unconstitutional by the Court.

What can be done is continue paying C+S on intermediary transaction and whenever the matter attains finality in the SC apply for refund if it is still held unconstitutional.

[Vinay Kunte]

Thank you all for your valuable replies and we will keep the advise in mind before any final decision is taken in this respect based on the final decision or order (if any) issued by the Hon. Supreme Court of India, as and when issued.

Thank you once again.

[Padmanathan Kollengode]

Ld Amit Ji,

Kindly suggest whether it is better not to pay GST at all or pay under protest (if that is possible). how to litigate the issue with least risk?

[Amit Agrawal]

@ Shri Padmanathan Ji & The Querist,

Issue raised by you have multiple facets including who is ultimately bearing taxes, type of taxes paid, risk appetite of the tax payer, implications under income tax & so on. and there can not be any straight-jacket formula.

Kindly allow me to give few pointers:

If one intents to continue paying taxes, it should be under protest by writing suitable letter to jurisdictional officers taking cue of subject HC ruling.

Moreover, continue paying CGST & CGST - while relying on this ruling - is tricky considering the fact that only common conclusion is that, all 3 of them ruled that, CGST & SGST is not payable against such services (although for 3 different reasonings).

Hence, to the extent possible, one should try & get Dept officer to say which taxes should be paid before you continue paying taxes (of course, under protest).

Reason behind paying taxes under protest is to ensure that time-limit of 2 years to claim refund does not deprive tax-payer from claiming refund in case Apex court held that no taxes are payable under GST (which is my view for intermediary services where service-provider is located in India and recipient is located outside India). This becomes absolutely necessary when taxes are borne by the tax-payer from his own pocket.

Another option to be explored is 'provisional assessment' u/s 60 though Dept. may deny it on the ground that subject situation is not about determination 'the value of goods or services or both or determine the rate of tax applicable thereto'.

Last option to be explored is claiming refund of taxes paid till date by the ground that no taxes was actually payable. You can use "suitable portions" from this HC ruling to claim that whatever taxes were paid by the taxpayer was not required to be paid. Depending upon Dept's reason/s for denial of refund-claim (who is most expected course of action), one can explore best course of action going forward.

W.r.t. option of seeking advance ruling, considering past experiences, I do not expect to get verdict agreeing with non-taxability (which is my view). And there is also good chance that they will refuse to give the ruling even though Some HC ruled that such matters are covered for seeking advance ruling. Anyway, I do not see any great value in getting ruling binding tax-payer to pay either IGST or CGST + SGST.

Best course of action - going forward - is dependent of so many factors and same needs case to case analysis to arrive at conclusions. Moreover, suitable changes will be required including agreement/s with customers depending upon course of action chosen going forward (For example: How to avoid bar of unjust enrichment if intention to pay taxes under protest keeping option of claiming its refund in future?).

P.S. Before all above, one needs to first determine if nature of services provided are indeed 'Intermediary' as defied u/s 2 (13) of the IGST Act, with special focus that same does not include a person who supplies such goods or services or both or securities on his own account. If one is not sure that services provided are indeed 'Intermediary', line of corrective action will change dramatically.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.