The Goods and Services Tax (GST) Board of Control has decided to clarify problems relating to the definition of “intermediary services” under the GST Law. The problem was investigated in light of the challenges faced by trade and industry, as well as to ensure uniformity in the law’s provisions among field formations.
- Intermediary services scope
When comparing the scope of intermediary services in the GST and Service Tax regimes, it is clear that there is little difference in the scope of intermediary services in the GST and Service Tax regimes, with the exception of the addition of supply of securities in the GST Law’s definition of intermediary.
- Requirements for intermediary service
i. Someone who arranges or facilitates the supply of goods, services, or securities between two or more individuals is known as an intermediary. A minimum of three parties is required for an arrangement, with two of them dealing in the supply of goods, services, or securities (the main supply) and one arranging or facilitating the main supply (the auxiliary supply). As a result, an action involving only two parties cannot be classified as intermediary service.
ii. In the case of providing intermediary services, there are two distinct supplies;
(1) Main supply, which can be a provision of commodities, services, or securities between the two principals;
(2) Ancillary supply is a service that facilitates or coordinates the main supply between the two principals. This ancillary supply is an intermediary service supply that is easily distinguishable from the main supplier.
A person who provides the main supply to another person on a principal-to-principal basis cannot be deemed a supplier of intermediary services.
- When the word “such” is used in the definition in relation to the supply of goods or services, it refers to the primary supply of products or services, or both, or securities, between two or more people that are organized or facilitated by the intermediary. It means that if a person supplies the main supply on a principal-to-principal basis, the supply is not covered by the term “intermediary.”
- The term “intermediary service provider” is defined as “a broker, an agent, or any other person, by whatever name called…” in the dictionary. This part of the definition isn’t exhaustive, but it does utilize the word “means” and doesn’t use any known expansion expressions like “and includes.” The term “arranges or facilitates” is included in the definition of “intermediary,” implying a secondary role for the intermediary. It must arrange or assist another supply, which is the primary supply because it does not offer the primary supply. As a result, the intermediary’s role is mainly supportive.
- Subcontracting is an important exception to the intermediary rule. The main service provider may choose to outsource the provision of the main service to one or more subcontractors, either entirely or partially. Such a subcontractor offers the primary supply, in whole or in part, and does not just organize or facilitate the main supply between the major supplier and his clients, indicating that it is not an intermediary.
- Only when either the provider of intermediary services or the recipient of intermediary services is located outside of India will the special provision of a place of supply of ‘intermediary services’ under section 13 of the IGST Act be enforced.