Supplier of ITes services will not be covered under the provision of Intermediary and quality for export of services however provide of certain backend support services to foreign customer will fall under the definition of intermediary and not qualified for export benefits under GST
The Indian ITeS industry generates significant foreign exchange for India and is one of the emerging hubs of the world. Nevertheless, the Indian ITeS industry has been facing significant competition from its Asian counterparts like Philippines, Vietnam etc. In this context, the Government of India has provided various export incentives to make Indian ITeS services exports competitive in the global market.
In this context, Central Board of Indirect Taxes and Customs has received several representations from trade and industry seeking clarifications on the scope of Information Technology enabled Services (“ITeS”) (like call center, business process outsourcing (‘BOP’) services, etc. and services by “Intermediaries” under GST law. There were questions raised whether the same qualify to be “export of services” under GST law.
Vide Circular No. 107/26/2019-GST dated 18 July 2019, the CBIC has provided clarifications on the same. In this context, the CBIC has clarified that the ITeS services not provided to own account shall not be considered as “Intermediary services” and shall be considered as ‘export of services’ if other conditions are satisfied.
The summary of the Circular is given below:
1. Definition of Intermediary in GST
As per Section 2(13) of the Integrated Goods and Service Tax Act, 2017 (“IGST Act”), an 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.
2. Specific exclusion
The definition of intermediary provides a specific exclusion of a person who supplies such goods or services or both or securities on his own account. Accordingly, the service provider would not be considered as an “Intermediary” if he is involved in the supply of services on his own account, even while acting as an agent/ broker or any other person.
3. Scope of ITeS
ITeS is not defined under the GST law. However, the definition of ITeS can be traced to Rule 10TA(e) of the Income-tax Rules,1962 on the provisions of Safe Harbour Rules for International Transactions.
ITeS means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:
- back office operations;
- call centres or contact centre services;
- data processing and data mining;
- insurance claim processing;
- legal databases;
- creation and maintenance of medical transcription excluding medical advice;
- translation services;
- remote maintenance;
- revenue accounting;
- support centres;
- website services;
- data search integration and analysis;
- remote education excluding education content development; or
- clinical database management services excluding clinical trials,
However, ITeS specifically excludes any research and development services whether or not in the nature of contract research and development services.
4. Scope of Backend support services
Such backend services may include support services, during pre-delivery, delivery and post-delivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.).
5. Various examples for classification of ITeS as “Intermediary services”
5.1 ITeS service provider renders back end services
- Services provided on its own account – Service provider would not be considered as an “Intermediary”.
- Services rendered to the customers of his clients on behalf of the client – Service provider would not be considered as an “Intermediary”, if services are provided on its own account
5.1 Backend support service provider facilitates supplies of goods/ services
- Supplier of backend support services provider arranges/ facilitates the supply of goods or services on behalf of client located abroad to the customers of client.
- Backend services may include support services, during pre-delivery, delivery and post- delivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.)
- Service provider would be considered as an “Intermediary” as these services are merely for arranging or facilitating the supply of goods or services or both between two or more persons and not to its own account.
5.3 Supplier providing ITeS services and Backend support services of goods/ services on its own account as well as on behalf of others
- Indian service provider renders services on his own account and also arranges/ facilitates various support services.
- Two sets of services are rendered – ITeS services and backend Support services
- Whether the service provider would be considered as an “Intermediary” or not would depend on the facts and circumstances of each case. Determination of the principal/ main supply and incidental supplies is a factual exercise.
6. Availability of export benefit to ITeS service providers
An ITeS service provider who is not an “Intermediary” under Section 2(13) of IGST Act would be eligible for export benefits under the GST law. The service would be considered as an ‘export of services’ if all the following conditions are satisfied under Section 2(6) of the IGST Act:
- Service provider is located in India
- Service recipient is located outside India
- Place of supply of service is outside India
- Payment for services has been received service provider in convertible foreign exchange
- Service provider and Service recipient are not merely establishments of a distinct person as per Explanation 1 to Section 8 of IGST Act.
These clarifications by the CBIC are a welcome move and should definitely bring cheers to the Indian ITeS industry. By virtue of applying this Circular and determining that the services are not in the nature of “Intermediary services”, the services may qualify as ‘export of services’ and eligible for refund, if the other conditions are also satisfied.