GST on Intermediary Services

1. GST ON INTERMEDIARY SERVICES
ANISH J PARASHAR

2. CASE LAW DISSCUSSIONS
INTERMEDIARY SERVICE

3. THE LITIGIOUSNESS WHILE INTERPRETING ‘INTERMEDIARY’
 Interpretation of ‘Intermediary services’ often ends in a legal battle.
The reason is rather easy to comprehend. It has always been a
government policy to not export local taxes so that exporters in
India are not placed at a disadvantageous position as opposed to
their counterparts abroad. This is a global principle. Thus, GST is
not to be charged on goods or services exported ‘from’ India.
However, contrary to this policy, intermediary services, even if
rendered to a foreign entity, have been brought within the tax net.

4. ZERO RATED TRANSACTION
 A transaction is ‘zero-rated’ by the virtue of Section 16(1) of the
Integrated Goods and Services Tax Act, 2017. The relevant
provision is extracted herein under:-
 (1) “zero-rated supply” means any of the following supplies of
goods or services or both, namely:––
(a) export of goods or services or both;
(b) supply of goods or services or both to a Special Economic Zone
developer or a Special Economic Zone unit.

5. PL. NOTE
 Since GST is fundamentally a ‘Destination based
tax’, in the case of export of service, the service
ought not to be taxed if the service provider is
located in India and the service recipient is not
within the Indian jurisdiction. For the service to
qualify as “export of service”, it needs to satisfy the
conditions mentioned in Section 2(6) of the IGST
Act, 2017.

6. THE DEFINITION IS AS FOLLOWS:
(6) “export of services” means the supply of any service 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
 (v) 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;

7. PLACE OF
SUPPLY
PROVISION
 One of the pre-requisites for “export of
service” is that the place of supply falls
outside India. As per Section 13 (2) of
the Act, the place of supply of services
except the services specified in sub-
sections (3) to (13) shall be the location
of the recipient of services. In other
words, sub-sections (3) to (13) are
exceptions to the general rule that the
place of supply shall be the recipient of
services. Inter alia other sub-sections,
sub-clause (b) under Sub-section (8) of
Section 13 alone is of relevance to the
discussion in hand and is extracted
hereinunder.

8. EXCEPTION TO
SECTION 13(2)
OF IGST ACT
 (8) The place of supply of the following
services shall be the location of the supplier
of services, namely:––
 (a) services supplied by a banking company,
or a financial institution, or a non-banking
financial company, to account holders;
 (b) intermediary services;
 (c) services consisting of hiring of means of
transport, including yachts but excluding
aircraft and vessels, up to a period of one
month.

9. THE ISSUE
 A perusal of the above-extracted provision of law
clearly establishes that in so far as an ‘Intermediary’
is concerned, the ‘Place of Supply’ shall be the
‘location of the supplier of the service’
notwithstanding the fact that the service is
rendered to an entity abroad. Therefore, it is all the
more important to give a narrow interpretation of
the term ‘intermediary’.
 While that being the law on the levy, there is a tug
of war where on one hand, the assessee seeks
shelter under Section 16(1)(a), and on the other, the
assessee is brought under the definition of
‘Intermediary’ and subjected to tax by determining
the ‘Place of Supply’ as per Section 13(8)(b) of the
Act. Thus, the gravamen of the dispute boils down
to the determination of whether an entity would
classify as an ‘Intermediary’ under Section 2(13) of
the Act or otherwise.

10. THE SCOPE AND
AMBIT OF
“INTERMEDIARY”
 The definition of the term “intermediary” as per Section 2(13)
of the Act is reproduced below;-
 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;
 A bare perusal of the above provision, however, appears to
suffer from the vice of being overbroad and vague. At first
glance, the definition appears to encompass within its meaning
any transaction with two or more parties. At least, such vide
interpretation has been given by the Authority for Advance
Ruling under GST for the term “intermediary” in several
instances. Therefore, it becomes all the more imperative to
decode every word of the definition.
 The definition of ‘intermediary’ is an inclusive one. It
unambiguously states that an intermediary would include a
‘Broker’ or an ‘Agent’ or any ‘Other person’. The essential
requisite seems to be ‘facilitation of supply of goods or service
between persons’.

11. ANALYSIS OF DEFINITION - INTERMEDIARY
Firstly, as per Section 182 of the Contract Act, 1872, an ‘Agent’ is a person employed to do any act for
another or to represent another in dealings with the third person. An ‘agent’ is also a person employed to
do any act for another or to represent another in dealings with the third person.
Secondly, as far as ‘Broker’ is concerned, no enactment specifically provides for a definition to take a cue
from. However, the Full Bench of the Madras High Court in Kandula Radhakrishna Rao And Ors. vs The
Province Of Madras not only defined ‘Broker’ but also made a clear distinction from a ‘Commission
Agent’. The germane portion the Full Bench is extracted herein under;-
“…………….A broker is an agent employed to make a bargain for another and receives a commission on the
transaction which is usually called brokerage. He has usually neither the custody nor the possession of
the goods. It is the broker’s duty to establish privity of contract between the principal and the third party.
The broker cannot sell in his own name nor can he sue on the contract. A commission agent, on the other
hand, of the class to which the plaintiffs belong, is not like a broker. He has almost invariably, custody or
possession of the goods, actually or constructively.”
Thirdly, the words ‘any other person’ specified in the statute has to be construed ‘ejusdem generis’ with
‘Broker’ or ‘Agent’ and not of a different class. To identify the class of persons contemplated under the
statute, the legislature in its wisdom has deliberately added the phrase ‘arranges or facilitates the supply
of goods or services or both, or securities, between two or more persons’. The aforesaid phrase ought to
be read conjunctively with the first portion of the definition. This is so as to exclude any person who
‘arranges or facilitates the supply of service’ but does so on an independent basis and not on a
representational capacity such as that of an agent or a broker. In other words, any person who provides

12. CASE OF IN RE GLOBAL REACH EDUCATION SERVICES PVT LTD
 order

13. FINAL VIEW IN RE GLOBAL REACH EDUCATION SERVICES PVT LTD
the issue before the AAR was whether the marketing service and the
university-specific support services provided by the supplier would amount
to ‘intermediary service’. The appellant-applicant therein was an education
consultant in the business of promoting the courses offered by various
foreign Universities on a contractual basis; remuneration was a percentage
of the tuition fee paid by the students. . However, the AAR held that the
assessee was acting as a ‘recruiting agent’, and thus would fall within the
meaning of ‘intermediary’. The various precedents under the service tax
regime were distinguished by the AAR on the basis of semantics in the two
definitions of ‘intermediary’.

14. POSITION IN GST REGIME
 in the GST regime by the AAR and Appellate AAR in the cases of In re:
McAfee Software (India) Pvt. Ltd and In re: Infinera India Pvt. Ltd. By
giving a wide interpretation of the term “arranging” and “facilitating”, the
AAR has brought such services into the ambit of “intermediary services”.
In fact, in the former case, the AAR has peculiarly held that “Nothing in
the definition of intermediary services excludes a facilitator working on
principal to principal basis”. In the latter, there has been no examination
of this test at all.

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