GST on intermediary service

[navnath padwal]

Introduction

Intermediary is one of the short but complex subject in GST. to understand this, first we will arrange the legal section and notification which are define Intermediary service and related to it .

• Section 2(13) define term "Intermediary"
• Entry 12AA of Notification no 09/2017 – IGST ( rate) dated 28.06.2017 given exemption to service provided by Intermediary related to supply of goods when location of supplier and receiver is out side India ( with some condition) .
• Section 13(8) of IGST  act specify  when anyone out of supplier or receiver of service is out of India then place of supply of Intermediary service shall be location of supplier.

There is no litigation in case of supplier and receiver of Intermediary service are in India as this service is taxable, however the problem come when anyone of the supplier or receiver of Intermediary service is outside India. when supplier is from India providing Intermediary service to foreign company, place of supply of such service would be deemed to be in India and he will require to pay the tax, as against , when supplier of Intermediary service is outside India and receiver is in India , the receiver will NOT require to pay tax under RCM mechanism.

Let go to definition of term Intermediary.

Section  2(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;

 To understand the term we will break the definition

“intermediary” means

1. a broker, an agent or any other person, by whatever name called,
2. who arranges or facilitates the supply of goods or services or both, or securities,
3. between two or more persons,
4. but does not include a person who supplies such goods or services or both or securities on his own account;

remark

1. the definition start with “ means” , then this definition is exclusive definition and it should be considered hard definition and no other meaning to such definition shall be given.
2. Second , person need to be agent or broker to be considered as intermediary.
3. Further he need to facility and arrange the supply of good or service
4. There should be two or more person other than intermediary in deal/transaction.
5. Last, intermediary shall not supply such  goods or service on his own account  i.e intermediary will not take any risk in such transaction ,

Applying the above principle , one can appreciate the person need to agent or broker , then he need to arrange or facility supply between other two persons and he should not supply such goods or service on his own account/risk.

Thus, person who is faciliting or arranging sale of goods, marketing or sale promotion, negotiating the term between two different person shall be called intermediary only if he is not providing such service on his own.

the problem comes only when receiver is out of India and supplier is India. the  supplier require to pay GST on commission as “ location of supplier”   became “place of supply”  for GST levy.

Exemption :

Exemption given by entry  12AA notification of above mentioned notification.

Sl. No.	Service Code (Tariff)	Description of Services	Rate (per cent.)	Condition
1	2	3	4	5
12AA	Heading 9961	Services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory.	Nil	Following documents shall be maintained for a minimum duration of five years: 1) Copy of Bill of Lading 2) Copy of executed contract between Supplier/Seller and Receiver/Buyer of goods 3) Copy of commission debit note raised by an intermediary service provider in taxable territory from service recipient located in non-taxable territory 3) Copy of certificate of origin issued by service recipient located in non-taxable territory 4) Declaration letter from an intermediary service provider in taxable territory on company letter head confirming that commission debit note raised relates to contract when both supplier and receiver of goods are outside the taxable territory”;

Let take example

1. Indian Agent arrange deal between American seller with Indian buyer
2. Indian agent arrange deal between Indian seller with American buyer
3. Indian agent arrange deal between American seller with African buyer  in case of goods
4. Indian agent arrange deal between American service provider with African consumer for service

GST levy

1. First and second case GST will be require to pay on commission amount as supplier of intermediary service i.e agent is in India as per section 13(8) place of supply will be location of agent.
2. Third case , GST is chargeable as per exemption entry 12AA if condition mentioned therein fulfilled.    
3. Forth case, GST is chargeable as no exemption given for service.

Clarification given by board in ST era

1. Fright forwarder

There are two of type  freight forwarder who arrange deal between exporter and airline.  

First  case of fright forwarder who act as agent and  arrange deal between ocean liner and exporter  and he do not take responsibility of transportation , then he will treated as  intermediary

Second type of freight forwarder, who take full responsibility of transport and negotiate separately for price with ocean liner and exporter  , then he will not be treated as intermediary. ( Place of supply will be …. )

2. Call Center

If Call center provide service on own account, then they will not be treated as intermediary. ( agreement with client require to check as some time call Center also facilitate deal or service for foreign company with Indian customer)

More example :

1. Indian company providing marketing and promotion service to foreign company in own account and anythings wrong happen , then Indian company will accountable for the same , then Indian company will not be considered as intermediary
2. Indian company make marketing and promotion activities for foreign company to get investment amount in foreign company. In return,  Indian company get consideration of  2% of amount received by foreign company, then Indian company will be treated as  intermediary for GST.
3. Indian company take effort to sale product in gulf area manufactured by American company, the Indian company get lum sum monthly consideration. Indian company will be treated as intermediary however he can get exemption as per entry 12AA if he fulfill condition.

From the above , it can be conclude that problem with intermediary service arise only if supplier or receiver of service is outside India , therefore in such case, agreement with service receiver and provider will pay important role to decide whether service is on principal to principal basis, whether consideration in % term or not  , person accountable in case deficiency  in service .