Next Gen GST reforms solve the anomaly for intermediary services and offer substantial financial relief to make the sector more competitive. The proposed amendment seeks to delete place of supply provision, thereby re-classifying such services as exports and allowing firms to claim input tax credit refunds.
Introduction:
GST Council in its 56th meeting has recommended significant next-generation reforms for India Inc. and consumers. The proposal focuses on rate rationalization, structural reforms and ease of living.
One of the trade facilitation measures proposed by the GST Council is an amendment in the specific place of supply provisions for intermediary services under Section 13(8)(b) of the Integrated Goods and Servies Tax Act, 2017 (‘IGST Act’) deeming place of supply as the location of supplier i.e., India. This reform will provide the level playing field to Indian intermediaries competing with global market. We have deliberated the impact of this amendment, in this article.
Background of the amendment:
As per Section 13(8)(b) of the IGST Act, the place of supply of intermediary services shall be the location of the supplier. The concept of ‘intermediary’ was borrowed in the GST law from the Service Tax regime.
As per GST law, intermediary is a person who arranges or facilitates the supply of goods and/or services or securities, between two persons. But it does not include such person who supplies such goods and/or services or securities on his own account.
However, due to artificial provision of place of supply of intermediary services, the export benefits were not available to intermediaries even though the consideration is received in foreign currency.
The commission earned on services provided by an intermediary in case of merchant trading transaction are exempt from payment of GST. The concept of intermediaries has always been a bone of contention between the assesses and the tax authorities.
The Hon’ble Gujarat High Court[1] and Hon’ble Hon’ble Bombay High Court[2] have held that Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional, provided the said provisions are confined in their operation to the provisions of IGST Act.
The Courts have dealt with the situations where the Indian entities were engaged in performing gamut of activities for the foreign recipient and only part of it was qualifying as intermediary. It was difficult to bifurcate the activities into intermediary and other services. Disputes were raised by treating the entire activities of the Indian entity as an intermediary and thereby denying the benefit of export of services.
Further, there were cases wherein the Courts, on the basis of factual demonstration of the nature of services, have observed that it is crucial to examine as to whether the entity was genuinely facilitating a transaction between two parties or was itself the principal service provider.
The Delhi High Court[3] has observed that the assessee was rendering professional services and had not arranged or facilitated the supply from any third party. The assesee was not rendering services as an intermediary.
Recently, the Hon’ble Supreme Court in KC Overseas Education[4] has dismissed Department’s appeal against the decision of the Bombay High Court holding that the services rendered by Overseas Education consultants to foreign universities are not in nature of intermediary services and qualify as ‘export of service’ based on principal-to-principal nature and factual position of services.
Proposed amendment:
GST Council, in its 55th meeting, has discussed the need for amendment in place of supply provisions for intermediary services. Vide 56th meeting, the GST Council has recommended to omit Section 13(8)(b) of IGST Act. Accordingly, post amendment, the place of supply for ‘intermediary services’ will be determined as per the default provision under Section 13(2) of the IGST Act i.e., location of the recipient of such services.
The proposal will benefit the Indian service exporters to claim export benefits on the receipt of payment in foreign currency and satisfaction of export conditions. Industries such as IT, consulting, BPO, technology support services including GCCs will be able to claim the status of exporter. It will rest the legacy issue faced by the exporters since the service tax era. The amendment will favourably impact India’s competitiveness as exports will become cost effective.
Effective date of amendment:
The proposed amendment being a change in law may not be implemented by September, 2025. The amendment needs to be carried out in the IGST Act. We expect the amendment to get implemented from the next budget session or by way of an ordinance by the State and Centre for granting immediate relief.
Past and current litigation:
The question may arise on the liability of the intermediary to discharge services where an intermediary service provider in India provides services to an overseas service recipient prior to the date of amendment but raises invoice and receives payment after the date of amendment. Whether the benefit of export of services will be available to the intermediary?
Furthermore, the amendment may not impact the past litigations / demand liabilities unless the law provides for retrospective application or relief under Section 11A of the CGST Act on ‘as is where is’ basis is provided to the assessees. In the event of ambiguity, clarification may be sought by industry seeking the nature of amendment i.e., being clarificatory or not. Accordingly, businesses need to re-align their practices and assess the past exposure, if any. The wording of the amendment and effective date need to be evaluated for the period till the effective date. Any change in position prior to the effective date needs to be examined based on the factual documentation. The possibility of claiming refund of tax paid for the past tax paid may be explored by the taxpayers.
Impact on importers:
Though the amendment will benefit exporters, it may adversely impact the importers. Going forward, post amendment, a service recipient in India will be liable to discharge GST on reverse charge basis on services received from an overseas intermediary service provider. It will have an impact on sectors where credit is not available such as hotel, travel agent, airlines, petroleum.
The question may also arise on liability of the service recipient to pay tax under reverse charge basis where the service recipient has received a service prior to the date of amendment but makes payment to the overseas service provider after the date of amendment.
The proposed amendment is in line with the law prevailing in other countries with respect to intermediary services.
For e.g. In United Kingdom, services of intermediaries who are involved in export of goods are zero-rated whether such services are provided to an exporter or to an overseas buyer.
On the concluding note, the proposed amendment is a welcome relief for service exporters making Indian exports more cost-effective and competitive in the global market. The move will provide level playing field to the Indian exporters with the overseas exporters. Nonetheless, the exporters should reassess their past liabilities and seek appropriate clarification with respect to the nature of the proposed amendment. Further, the importers should also examine their business model and evaluate the impact of GST liability due to the proposed amendment.
[The authors are Executive Partner and Associate Partner, respectively, in GST practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] Material Recycling Association of India v. Union of India [2020-VIL-341-GUJ]
[2] Dharmendra M. Jain v. Union of India [2023-VIL-346-BOM]
[3] Ernst and Young Limited v. Additional Commissioner [2023-VIL-190-DEL]
[4] SLP No. 21104-21105/2025
