Classification of a service under intermediary or otherwise affects various provisions like inter-state/intra-state supply or export or import of service. Therefore, it is necessary to under the provision of intermediary under GST.

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;

The definition emphasises following points;

a) An intermediary arranges or facilitates supply of original goods or main services, or securities between two more persons.

b) It does not include a person who supplies such goods or services or both or securities on his own account.

c) An intermediary is involved with two supplies

i) The supply between the principal and the third party; and

ii) The supply of his own service (agency service) to his principal, for which a fee or
commission is usually charged.

c) An intermediary cannot alter the nature or value of service, the supply of which he facilitates on behalf of his principal, although the principal may authorize to negotiate a different price.

d) The consideration for an intermediary’s service is separately identifiable from the main supply of service that he is arranging and is in the nature of fee or commission charged by him.

e) The test of agency must be satisfied between the principal and the agent i.e. the intermediary. The Guidance note states that the intermediary or the agent must have documentary evidence authorizing him to act on behalf of the provider of the ‘main service’.

f) The payment for such services is received by way of commission.

Intermediary” essentially involves 3 or more persons

a) Supplier of service/goods,

b) Principal on whose behalf service is rendered/goods supplied and

c) Persons who actually receives the service/goods (i.e., customers of the
principal).

Example

Activity of “commissions agent”.

The commissions agent sales the same goods of principal, however the sale is happening between manufacturer and buyer; the commission agent is not the owner of goods when the sale is happening. The commission agent is acting as an intermediary.

Thus, such supplies involve three persons;

principal whose goods or services are being supplied, and

recipient who are receiving the supply of goods or services or both and

an intermediary in between.

Nature of supply of goods or services should not change

The operative part of the definition of “intermediary” is “who arranges or facilitates the supply of goods or services or both or securities”.

Thus, an intermediary is one who arranges or facilitates supply of goods or services or both, belonging to the principal. Therefore, the nature of goods or services supplied by the intermediary must be same as goods or services supplied by the principal.

If the nature of supply of goods or services by some person is different from the supply of principal, it cannot be said that the person is merely arranging or facilitating supply of goods or services. An intermediary cannot alter the nature or value of supply, which he facilitates on behalf of his principal.

Further a person can arrange or facilitates supply of goods or services belonging to some other person only when she has been authorised by the principal. In view of this, the test of agency must be satisfied between the principal and the agent i.e. the intermediary.

Intermediary under Service Tax Provisions:

Rule 2(f) of the Place of Provision of Services Rules, 2012 defines intermediary services as,

“Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account;”

Definition of “intermediary” in Section 2(13) of the IGST Act and under erstwhile Service Tax law has been identical; thus, the law developed under Service Tax provisions shall be squarely applicable in GST era.

Vide above circular, Board has clarified on following issues

P-3

Definition of “intermediary” u/s 2(13) of IGST Act, 2017

P-31

Exclusion of Person from definition of intermediary

The definition of intermediary inter alia provides specific exclusion of a person i.e. that of a person who supplies such goods or services on his own account.

Therefore, the supplier of services would not be treated as “intermediary‟ even where the supplier of services qualifies to be “an agent/ broker or any other person‟ if he is involved in the supply of services on his own account.

P-4

Type of Services under ITeS

Information Technology enabled Services (ITeS services), though not defined under the GST law, have been defined u/r 10TA(e) of the Income-tax Rules, 1962 which pertains to Safe Harbour Rules for international transactions. It defines ITeS services as-

"information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:—

(i) back office operations; (ii) call centres or contact centre services; (iii) data processing and data mining; (iv) insurance claim processing; (v) legal databases; (vi) creation and maintenance of medical transcription excluding medical advice; (vii) translation services; (viii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres; (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or (xv) clinical database management services excluding clinical trials,

but does not include any research and development services whether or not in the nature of contract research and development services‖.

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There may be various possible scenarios when a supplier of ITeS services located in India supplies services for and on behalf of a client located abroad. These scenarios have been examined and are being discussed in detail hereunder:

P-5.1

Scenario-1 Intermediary Services does not include services that are provided on his own account

The supplier of ITeS services supplies back end services as listed in para 4 above.

In such a scenario, the supplier will not fall under the ambit of intermediary u/s 2(13) of the IGST Act where these services are provided on his own account by such supplier.

Even where a supplier supplies ITeS services to customers of his clients on clients‟ behalf, but actually supplies these services on his own account, the supplier will not be categorized as intermediary.

In other words, a supplier “A” supplying services, listed in para 4 above, on his own account to his client “B” or to the customer “C” of his client would not be intermediary in terms of section 2(13) of the IGST Act.

P-5.2

Scenario –II Supplier in India arranges or facilitates supply of goods or services by the client located abroad to the customers of client

The supplier of backend services located in India arranges or facilitates the supply of goods or services or both by the client located abroad to the customers of client.

Such backend services may include support services, during pre-delivery, delivery and postdelivery 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.).

The supplier of such services will fall under the ambit of intermediary u/s 2(13) of the IGST Act as these services are merely for arranging or facilitating the supply of goods or services or both between two or more persons.

In other words, a supplier “A” supplying backend services as mentioned in this scenario to the customer “C” of his client “B” would be intermediary in terms of section 2(13) of the IGST Act.

P-5.3

Scenario-III Combination of Scenario I and II

The supplier of ITeS services supplies back end services, as listed in para 4 above, on his own account along with arranging or facilitating the supply of various support services during pre-delivery, delivery and post-delivery of supply for and on behalf of the client located abroad.

In this case, the supplier is supplying two set of services, namely ITeS services and various support services to his client or to the customer of the client.

Whether the supplier of such services would fall under the ambit of intermediary u/s 2(13) of the IGST Act will depend on the facts and circumstances of each case.

In other words, whether a supplier “A” supplying services listed in para 4 above as well as support services listed in Scenario -II above to his client “B” and / or to the customer “C” of his client is intermediary or not in terms section 2(13) of the IGST Act would have to be determined in facts and circumstances of each case and would be determined keeping in view which set of services is the principal / main supply

In Vservglobal Private Limited [2018 (19) G.S.T.L. 173 (A.A.R. – GST)], [Iter

it was held that back office support services, payroll processing, maintenance of records of employee provided by applicant to overseas companies, i.e., clients after finalization of purchase/sale between client and its customer – Accordingly, support services being provided by applicants would be ‘intermediary services’ and the applicant would be covered in the definition of ‘intermediary’ in terms of Section 2(13) of IGST Act, 2017.

GoDaddy India Web Services Pvt. Ltd.,

Various types of business support services were provided, on cost plus margin basis. The Authority for Advanced Ruling held that it is not an intermediary service- [2016 (46) S.T.R. 806 (A.A.R.)]. Read-No Service Tax on Web Hosting & Domain name registration/ transfer services provided by GoDaddy: AAR

Asahi Kasei India Pvt. Ltd. (AAR Maharashtra) – affirmed by AAAR

NES Global Specialist Engineering Services Pvt. Ltd. (AAR Maharashtra)