[Opinion] Whether the Intermediary Issue Stands Resolved in Light of Dismissal of Civil Appeal by the Apex Court in Chevron’s and SNQS’s Cases?

Priyanka Rathi – [2024] 161 taxmann.com 564 (Article)

Introduction

Intermediary services have been in the spotlight under GST mainly on account of rejection of export-related refunds. While taxpayers believe that services provided by them to overseas entities ought to qualify as export of services, Revenue views such transactions as intermediary services involving mere facilitation of supply between the foreign party and its customer in India, thereby rendering the place of provision of such services within India and ousting them from the ambit of exports.

In the service tax regime as well, export refund on account of intermediary services was highly disputed and various rulings of CESTAT as well as few High Courts expounded the position of law in this context. Now under GST, in terms of Court rulings, there have been some notable judicial pronouncements which have laid down important guidelines for navigation around the intermediary issue. However, despite these rulings, the question still looms as to whether there exists any straight jacket formula yet within the precinct of GST laws for determination of intermediary services. Further, the question also arises as to how one needs to interpret the element of facilitation of supply to arrive at the intermediary nature of services. In this article, the author has delved into the nature of intermediary services, analysed the relevant jurisprudence surrounding the issue with emphasis on marketing and sales promotion services and has attempted to examine whether the controversy stands resolved in light of decision in Chevron’s Case and SNQS’s Case by the Hon’ble Apex Court.

Intermediary services – Meaning

The scope of intermediary services is the same in GST as was the case under the erstwhile service tax regime. Further, the debate over the issue is also ongoing, wherein, the tax department vehemently contends that the services are intermediary and do not qualify as exports whereas the assessee claims that the services are on principal to principal basis, rendered on own account and cannot be classified as intermediary services.

In GST laws, the term intermediary has been defined under Section 2(13) of the IGST Act, 2017, as follows:

“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 perusal of the aforesaid definition makes it clear that, the arrangement or facilitation between two or more persons governs the classification under intermediary services. Further, if any service is provided on the service provider’s own account, then such service is excluded from the scope of intermediary services.

Denial of export refunds on account of intermediary services

In recent times, a spate of show cause notices/orders have been issued denying Input Tax Credit (“ITC”) refund on account of export of services alleging that the services are in nature of intermediary. Such services include a bouquet of services such as business support, marketing, sales promotion, call centre, recruitment services etc. Now, the issue that arises for consideration is whether all these services which are provided on own account, on principal to principal basis and where there is absence of any tripartite arrangement, can still be regarded as intermediary by Revenue. In this regard, to clarify the issue of intermediary, the CBIC had initially issued Circular No. 107/26/2019-GST dated July 18, 2019 which sought to clarify certain issues pertaining to intermediary, wherein it was stated that providing back-end support services such as order placement, delivery, obtaining clearances, post-sales support services would fall under the ambit of intermediary. However due to persisting ambiguities, the said Circular was later withdrawn. Subsequently, the CBIC issued another Circular No. 159/15/2021-GST dated September 20, 2021 (“Circular”) wherein it was stated that there was no change in the definition of intermediary from the erstwhile regime to GST. The said Circular further clarified the scope of intermediary services and specifically mentioned that only those services which are in nature of facilitation of supply of goods or services will get covered and not those services which are directly provided on own account. The said Circular also captured certain examples which will not fall within intermediary services such as customer care services, processing of insurance claims, outsourcing of work etc. Further, the Hon’ble Punjab & Haryana High Court in the Genpact ruling also dealt with the nature of intermediary services and held that any service provided on own account such as the BPO services cannot be regarded as intermediary as it does not fulfill the relevant conditions such as facilitation of supply etc. Thus, it is imperative on part of Revenue to carry out relevant examination of facts as well as applicable provisions before labeling any services as intermediary.

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