Background: Intermediary under GST
GST being a destination-based consumption tax is charged in accordance with the place of supply of goods/services. In this regard, the term ‘Intermediary’ occupies a significant analysis for identifying the GST implications with respect to transactions where the place of supply is outside India.
Intermediary is defined under sub-section (2) of section (13) of IGST Act, 2017 as under:
- a broker, an agent or any other person;
- who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons; and;
- who doesn’t supply such goods or services or both or securities on his own account
It is imperative to understand that the aforesaid conditions are to be read in consonance to each other. Further, the role of parties in the respective transaction also needs a careful analysis for classifying the supplier of goods / services as an intermediary under the GST law.
In this regard, very recently the West Bengal AAR adjudicating the matter of Teretex Trading Private Limited (03/WBAAR/2021-22) ruled, that GST is chargeable on arranging sales of goods to recipient located outside India.
Brief facts:Teretex Trading Private Limited (hereinafter referred to as, the applicant) is proposed to be engaged in supplying services by way of arranging sales of goods for various overseas manufacturers/traders, with the following role in the transaction:
- To locate prospective overseas/Indian buyers and know their requirement goods;
- To arrange sales of the said goods from the foreign manufacturers/ traders to the prospective buyers;
- Goods are delivered to the buyers directly by the suppliers located outside the country;
- No prior agreement is made by the applicant with the overseas manufacturers/traders for arranging such sales;
- The applicant receives consideration in the form of commission in convertible foreign exchange from the overseas suppliers.
The applicant is of the opinion that the services going to be undertaken by him shall be termed as ‘export of services’ as per clause (6) of section 2 of the IGST Act, 2017 and therefore, he has no liability to pay tax on such supply of services.
- The submission of the applicant relates to being an independent service provider and does not constitute an agent for either the supplier or recipient of goods;
- No representation for on behalf of any party for procuring the goods or negotiate any terms thereof;
- That in some industries, there is the normal practice of selling goods through independent mediator/service provider without being appointed him as an agent against commission at the rate normally prevalent in the market;
- The applicant does not maintain any branch or establishment outside India and receives commission from overseas seller (being recipient of services) directly to his bank in India. Hence, the supplier (i.e. applicant) and recipient of services cannot be termed as merely establishment of distinct person in accordance with Explanation 1 in section 8 of the IGST Act, 2017.
- Further, conditions regarding export of services u/s 2(6) of IGST Act, 2017 have also been satisfied.
Ruling of AAR:
- Although the suppliers of goods (i.e. recipient of services) are located outside India, it is clear that the fact that the supply of services as provided by the applicant is inextricably linked with the supply of goods made by the overseas supplier;
- The applicant can neither change the nature and value of supply of goods nor he holds the title of the goods at any point of time during the entire transaction;
- The value of supply of services as provided by him is claimed to be based on an agreed percentage which is separately identifiable;
- The admission of the applicant to carry out the aforesaid activity without assuming any obligation on behalf of supplier or recipient of goods is different from its actual conduct thereof, which effectively implies that he is not acting on his own account;
- The nature of activities undertaken by the applicant towards arranging or facilitating supply of goods envisages the services closely akin to the services provided by an ‘intermediary‘ as defined in clause (13) of section 2 of the IGST Act, 2017
- Accordingly, the place of supply of services shall be location of supplier i.e. India pursuant to section 13(8) of the IGST Act, 2017 and hence the transaction is outside the purview of export of services as defined u/s 2(6) of the IGST Act, 2017.
- The ruling re-emphasizes the need to identify the respective role and responsibilities of parties to a transaction for characterizing the transaction as an export of service;
- It is essential that the meaning of ‘export of service’ to be read in conjunction with that specified for the term ‘intermediary’;
- Further, it also becomes imperative for various parties to re-look the contractual arrangement vis-à-vis actual conduct of parties to the transaction;
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This article has been contributed by:
Manager- Accounting Support & Compliance