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Home Articles Goods and Services Tax - GST Mr. M. GOVINDARAJAN Experts This
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March 2, 2019
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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The term ‘intermediary’ is defined under section 2(13) of the IGST Act as 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.

From the above definition it can be inferred that an intermediary can be a broker, an agent or any other person who arranges and facilitates the supply of goods and/or services between two or more persons and who cannot change the nature of supply as provided by the principal.

An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price.  The principal must know the exact value at which the service is obtained on his behalf, and any discounts that the intermediary obtains must be passed back to the principal.  The value of an intermediary’s service is invariably identifiable from the main supply of service that he is arranging.    Normally it is expected that the intermediary or agent would have documentary evidence authorizing him to act on behalf of the provider of the main service.

In re ‘Toshniwal Brothers (SR) Private Limited’ – 2019 (2) TMI 126 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA  the appellant is an agent identifying the prospective customers of his principal’s products in India, resolving customers’ queries relating to the product, communicating such queries and comments to the principal and reviewing credit rating on receipt of commission equal to certain percentage of sales prices of product from his principal.   The person acting in liaison capacity has to act as go-between his principal and his principal’s customers.  Thus, aforesaid activities of the appellant clearly in the nature of arranging or facilitating supply of goods by foreign entity to customers in India, the same is considered to be as intermediary services as defined under section 2(13) of the Central Goods and Services Tax Act, 2017 particularly when he is not supplying goods neither on behalf of the principal or on his own account but the same is supplied by the principal, a foreign entity.  Therefore the Appellate Authority held that the contention of the appellant that promotion and marketing services provided by him to such foreign entity on his account, excluded from purview of the definition of ‘intermediary service’ is not acceptable.

Intermediary services – Export of services?

Section 2(6) of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’ for short) defines the expression ‘export of services’ as the supply of services, 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 or in Indian rupees wherever permitted by the Reserve Bank of India; and

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.

Section 8 deals with Intra-State supplies.  Explanation 1 in section 8 provides that for the purposes of this Act, where a person has,-

  •  an establishment in India and any other establishment outside India;
  •  an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
  • an establishment in a State or Union territory and any other establishment registered within that State or Union territory,

then such establishments shall be treated as establishments of distinct persons.

Whether the intermediary services amount to export of services?  For this question the answer is given in the following case laws-

In re ‘Vishakhar Prashant Bhave’ – 2018 (12) TMI 227 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA  the question for which advance ruling was sought is as to whether the commission received by the applicant in convertible foreign exchange for rendering services as an intermediary between an exporter abroad receiving such services and an Indian importer of an equipment is an ‘export of service’ falling under section 2(6) of IGST Act and outside the purview of section 13(8)(b) attracting zero rated tax under section 16(1)(a) of IGST Act.   The AAR held that since the place of supply of services in this case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of GST laws.

In re ‘Global Reach Education Services Private Limited’ – 2018 (8) TMI 392 - APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL, the appellant promotes the courses of the University, finds suitable prospective students to undertake the courses, and, in accordance with University procedures and requirements, recruits and assists in the recruitment of suitable students and hence the Appellate Authority held that the appellant is to be considered as an intermediary in terms of section 2(13) of the IGST Act and the services of the appellant are not ‘export of services’ under the IGST Act.

In re ‘Sabre Travel Network India Private Limited’- 2018 (12) TMI 1006 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA the applicant obtained a non exclusive, royalty free right and license from its parent company, i.e, Sabre APAC, to distribute the CRS software in India.   The sales team of the applicant approaches the potential subscribers in India to whom they explain the features of CRS software and the flexibility of the said software to integrate with the potential subscriber’s system for smooth functioning.  Once the applicant gets a positive response from the subscriber, they scan the credentials and the business potential of the subscriber to whom it is proposed to market the CRS software.  Based on the organizational and workflow analysis of the subscriber and following a back ground check of their prior activities, the applicant logs on a request into the system through the website maintained by Sabre APAC called Subscriber Communication Management System.  If the subscriber agrees to use the CRS software, order forms are collected from them to begin the process for activation of the CRS Software.  Once the subscriber is registered successful and a Pseudo City Code is allotted in its favor.  Once the code is allotted and the setup is activated the applicant’s engineers install user interfaces to access the CRS Software in the subscriber’s computer systems.

The Authority found that the job of the applicant is to scout for the subscribers in India.  The applicant explains and educates the subscribers about the software.  The subscribers become aware of the software only after the applicant approaches them.  The software does not belong the applicant.  The Authority found that the applicant actually acts as an intermediary between the potential subscriber and Sabre APAC.  The applicant is not providing services on their own.  The software belongs to the parent company. 

Since the place of supply of services in this case is in taxable territory, the said intermediary services cannot be treated as ‘export of services; under the provisions of GST laws.  In order to classify as ‘export of service’ as per section 2(6) of the Integrated Goods and Services Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India.  In this case, the place of supply shall be the location of the supplier of services and therefore such ‘intermediary services’ cannot be classified as ‘export of services’.


By: Mr. M. GOVINDARAJAN - March 2, 2019


Discussions to this article



Nice enlightening article. Can you also please confirm that the Tax on such intermediary Services to a foreign clients needs to charged under CGST+SGST or only IGST?

As per my understanding / interpretation under provisions of Section 8(2) read with Section 12, the Tax is to be paid under IGST.

Is this interpretation correct? Please confirm or correct my interpretation in this respect.

With Regards,

By: Vinay Kunte
Dated: 04/03/2019

It is inter-State supply. IGST applicable. Excellent Article by Dr.Govindarajan, Sir.

Dated: 05/03/2019

As mentioned by Shri Sethi IGST applicable. Thanks both of you for your good comments on my article.

Dated: 05/03/2019

What is state code to be mentioned in invoice

By: ChandrakantBacharam Ghevade
Dated: 30/04/2019

The code of that State is to be mentioned on the invoice in which State the supplier of intermediary service is located.

Dated: 30/04/2019

Then it will become intra state transaction instead of inter state transaction, when the recipient of services is outside India

By: ChandrakantBacharam Ghevade
Dated: 30/04/2019


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