CENTRALISED PROCUREMENT SERVICES ON OWN ACCOUNT ARE NOT INTERMEDIARY: GSTAT

When a Group Procurement Arrangement Cannot Be Recast as Mere Facilitation

The GST Appellate Tribunal in Delhi delivered a significant ruling in the case of M/s. Dow Chemical International Private Ltd., Through Its Director, Shri Rahunathangavel Versus Commissioner Of State Tax, Mazgaon, Mumbai Asheesh Sharma & Ors. - 2026 (6) TMI 375 - GSTAT NEW DELHI-[PB]. This decision clarifies the often-debated distinction between 'intermediary services' and 'import of services' under the IGST Act, 2017. It addresses a practical issue common in multinational group arrangements, where one group company handles procurement, sourcing, marketing, support, advisory, or coordination for another group company in a different country. The dispute was not just about terminology but had direct tax implications. If the services from Dow Europe GmbH to Dow Chemical International were classified as intermediary services, the place of supply would be outside India, under Section 13(8)(b) of the IGST Act at the relevant time, meaning IGST would not be payable in India. Conversely, if the services were deemed imports, the place of supply would be in India, making the appellant liable for IGST under reverse charge. The Tribunal finally concluded that the services provided by Dow Europe were not intermediary services but rather core procurement services supplied on Dow Europe's own account to Dow India. Consequently, the transaction was considered an import of services, and the IGST refund claims paid under reverse charge were denied.

When the Dispute Began with a Procurement Hub Arrangement

Dow Chemical International Private Limited is engaged in manufacturing and distributing chemical components and offering related services. To improve its procurement processes, it entered into a Procurement Agreement dated 01.07.2021 with Dow Europe GmbH, Switzerland. As part of the global Dow group, Dow Europe functioned as a centralised procurement hub. The agreement included activities such as identifying, selecting, and approving suppliers; negotiating terms; facilitating supply; developing procurement strategies; reviewing and signing contracts and purchase orders; and other procurement tasks. The appellant argued that Dow Europe only acted as an intermediary, facilitating supply between the appellant and foreign suppliers.

Between January and June 2022, the appellant initially categorised the services as imports and paid IGST under reverse charge. Later, it was believed the payment was made in error, possibly due to a misunderstanding of the law. As a result, it reversed the claimed Input Tax Credit (ITC) related to these payments and submitted refund applications. Both the Adjudicating Authority and the First Appellate Authority rejected these refund requests. The case was then taken to the GST Appellate Tribunal (GSTAT).

The Real Test Is the Nature of the Service, Not Merely the Number of Parties

A common mistake in intermediary disputes is to think that having three parties automatically makes a transaction an intermediary service. The Tribunal avoided this oversimplification, recognising that three parties may be present in form, but this is only the start of the assessment. The key question is whether the service provider is simply arranging or facilitating another supply, or providing a substantial service on their own behalf. In this case, Dow Europe identified suppliers, negotiated terms, checked quality and quantity, and handled procurement for the Dow group. While the Tribunal acknowledged the presence of three parties, it concluded that the second crucial element of an intermediary service was not met. Dow Europe was not just offering an ancillary service of arranging or facilitating a main supply between two independent parties; instead, it acted as a central procurement hub and delivered core procurement services to group entities.

This distinction is important. A broker or agent typically acts as a connector between two parties, assisting them in completing a transaction in a supportive role. However, when a service provider takes on the procurement task itself, leveraging its own expertise, systems, and resources, the service shifts from simply facilitating to being an independent supply of services in its own right.

Circulars May Persuade, but Cannot Bind the Tribunal: The K.P. Varghese and Ellerman Lines Principle

The Tribunal examined Circular No. 159/15/2021-GST dated 20.09.2021, which clarifies the scope of intermediary services. Before applying the circular, the Tribunal noted a key legal point: departmental circulars are binding on departmental officers but not on High Courts or Tribunals. However, they can serve as persuasive references for interpretation. The Tribunal cited two landmark Supreme Court decisions-KP Varghese Versus Income-Tax Officer, Ernakulam, And Another - 1981 (9) TMI 1 - Supreme Court , and Ellerman Lines Limited Versus Commissioner of Income-Tax, West Bengal I - 1971 (10) TMI 7 - Supreme Court- to support this. These rulings clarify that while a circular may guide the Department's administrative actions, it does not dictate judicial interpretation. Courts and tribunals may consider a circular to understand the Department's view and use it if consistent with law, but they cannot be forced to accept a viewpoint that contradicts the statute.

This principle is highly relevant in GST. Circulars frequently clarify matters such as rate classification, intermediary services, exports, ITC restrictions, refund processes, and valuation issues, and both taxpayers and officials rely on them. Nevertheless, in legal disputes before a court or tribunal, the legal text is ultimately controlling. While circulars can aid in interpretation, they cannot supersede the law's text and framework.

The Exclusion for Own-Account Supplies Is the Heart of the Intermediary Definition

Circular No. 159 states that intermediary services require specific basic elements. There must be at least three parties involved. These include two separate supplies: a primary supply between two principals and a secondary supply that involves arranging or facilitating the main supply. The intermediary should act as a broker, agent, or similar role. Most crucially, the individual must not be providing the goods or services on his own account.

The final criterion proved crucial for Dow Chemical. Section 2(13) of the IGST Act defines an 'intermediary' as a broker, agent, or any other person, regardless of the title, who arranges or facilitates the supply of goods, services, or securities between two or more parties. However, this definition explicitly excludes individuals who supply such goods, services, or securities on their own account. This exclusion is fundamental, not superficial. It clarifies that if a person interacts with third parties, negotiates, coordinates, or facilitates commercial arrangements, he is not considered an intermediary if he supplies his own services on a principal-to-principal basis. In that case, he is not arranging another party's supply but is making his own.

Why Dow Europe Was More Than a Facilitator

The Tribunal concluded that Dow Europe was an independent contractor, not a broker, agent, or liaison entity. It did not act as a representative or bind Dow India during its services. Its role extended beyond just connecting Dow India with suppliers; it carried out substantial procurement activities within a centralised group procurement system. The Tribunal also observed that Dow Europe and Dow India were part of the same global corporation, Dow Inc., with Dow Europe serving as a central procurement hub for the entire group. Consequently, the services provided by Dow Europe were not merely auxiliary to independent transactions between unrelated entities but were essential services supplied within the group.

This finding holds significance for multinational companies. Many organisational structures include centralised service centres, procurement hubs, technology hubs, finance offices, or marketing support units. The legal status of these services depends on their actual activity. If an entity performs an outsourced function on its own behalf, it should not be casually labelled as an intermediary simply because it involves third-party vendors, customers, or suppliers.

Own-Account Procurement Support Is Not Intermediary: The Columbia Sportswear Principle

The Tribunal examined the Karnataka High Court's ruling in M/s. Columbia Sportswear India Sourcing Pvt. Ltd., Versus Union of India, Central Board of Indirect Taxes, The Assistant Commissioner of Central Tax Bengaluru, Additional Commissioner of Central Tax, Bengaluru. - 2025 (5) TMI 2139 - KARNATAKA HIGH COURT. In this case, the Indian firm offered buying support services to Columbia Sportswear Company in the USA. These services involved supplier identification, factory visits, production oversight, ensuring timely shipments, and handling documentation. The agreement classified the Indian company as an independent contractor, with no authority to bind the foreign client. Its payment was calculated on a cost-plus basis.

The Karnataka High Court held that the Indian entity was not an intermediary because it provided services directly to a foreign client rather than facilitating supply between the foreign client and third parties, as required by the intermediary definition. These services resembled business support for efficient procurement rather than commission-based agency services. The key legal insight from Columbia Sportswear is that procurement or buying support services do not automatically qualify as intermediary services. Instead, factors like the agreement, actual conduct, scope of work, authority to bind, remuneration structure, and the core commercial role must be considered. If the entity acts as an independent service provider delivering its own services, it cannot be classified as an intermediary.

In Dow Chemical, the Tribunal observed factual differences but considered the reasoning valuable. Unlike Columbia, this case involved a foreign entity offering services to an Indian group company. Nonetheless, the core principle remained the same: independent supply of services on one's own account does not fall within the definition of an intermediary.

Own-Account Marketing Support Is Not Intermediary: The Blackberry India Principle

The Tribunal also cited the Delhi High Court case in Pr. Commissioner, Central Excise And CGST-Delhi South Versus Blackberry India Private Limited - 2023 (7) TMI 719 - DELHI HIGH COURT. In this case, Blackberry India offered marketing, administrative, and support services to Blackberry Singapore. The Department claimed that Blackberry India acted as an intermediary. However, the CESTAT dismissed this claim, ruling that the services were exports. The Delhi High Court confirmed this decision.

BlackBerry India functioned as an independent contractor, not as an agent or broker, with no authority to bind BlackBerry Singapore or represent it. The contract between Blackberry India and Blackberry Singapore did not include Blackberry Singapore's customers. BlackBerry India was paid on a cost-plus basis, not based on actual customer sales. Legally, if a service provider offers promotional, marketing, technical, or administrative support directly to the foreign recipient on its own account, it isn't considered an intermediary simply because their services may indirectly support the recipient's business. Broader facilitation differs from merely 'arranging or facilitating' a primary supply between two parties, as outlined in Section 2(13) of the IGST Act, 2017.

The Dow Chemical ruling applies this principle to the import aspect of the transaction. If Indian outbound support services are not to be considered intermediaries simply because they assist foreign operations, then inbound procurement hub services should be evaluated under the same legal standard.

Revenue Cannot Take Two Opposite Positions

One notable observation is found in paragraph 14 of the judgment. The Tribunal highlighted that the Revenue has been using two different methods for handling cross-border group service arrangements. When an Indian company offers services to a sister company abroad, the Revenue often labels these as intermediary services and denies export benefits. Conversely, if a foreign company provides similar services to an Indian sister company, the Revenue considers them imported services rather than intermediary services, thereby aiming to collect taxes in India.

The Tribunal correctly noted that the two views cannot coexist and that a consistent legal approach is necessary. This is important because tax classification should not depend on the direction of revenue flow. The same legal test must be applied whether the service provider is within or outside India. If the service is provided on its own account, it should not be classified as an intermediary just to benefit the Revenue in a specific situation. This upholds a key fairness principle in GST. The Department cannot overly broaden the intermediary definition to deny export status for outbound services and then narrow it to tax inbound services, unless the facts truly justify such a distinction.

Advance Rulings Are Persuasive, Not Universal: The Airbus and Global Reach Context

The appellant cited certain advance rulings, including those in In Re: M/s Airbus Group India Private Limited - 2021 (7) TMI 263 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA , and In Re : Global Reach Education Services Pvt. Ltd. - 2018 (4) TMI 808 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL, in which the authorities adopted a broader interpretation of intermediary services. While the Tribunal acknowledged these rulings, it did not consider them binding. It cited Section 103 of the CGST Act, which provides that an advance ruling is binding only on the applicant and the relevant officer for that applicant.

This is a valuable legal principle. While advance rulings can be persuasive, they do not legally bind other taxpayers, officials, or appellate courts in different cases. This is especially relevant because disputes over intermediary services have led to different advance rulings based on the specific facts, contracts, and the authority's stance. Therefore, a taxpayer cannot rely on an advance ruling issued in someone else's case to determine his own situation.

Refund Cannot Be Rejected Merely as an Afterthought

The First Appellate Authority previously considered the refund claim an afterthought, arguing that the appellant had initially paid IGST as part of the import of services. However, the Tribunal disagreed with this reasoning. It clarified that under Section 54 of the CGST Act and Rule 89 of the CGST Rules, a refund cannot be denied solely because the tax was paid in error. This part of the judgment favours taxpayers, acknowledging that they might pay tax upfront and later realise it was not legally required. In such cases, taxpayers have the right to pursue a refund under the statutory time limit. Simply labelling the claim as an afterthought does not justify denying it without proper consideration on its merits.

The appellant did not succeed because the Tribunal determined that the tax was actually payable. Since the services were classified as imports of services rather than intermediary services, the IGST paid through reverse charge was non-refundable. Therefore, while the principle of a refund was acknowledged, the claim was denied on the merits.

Substance Must Prevail Over the Intermediary Label

The decision in Dow Chemical is significant because it emphasises substance over form. It clarifies that not all procurement-related activities are considered intermediary services. Instead, it involves assessing whether the service provider is simply facilitating a supply or providing a genuine service on its own account. This is the correct approach under Section 2(13) of the IGST Act, 2017, which defines the term 'intermediary'. The ruling also highlights the importance of contractual clauses, such as those indicating independent contractor status, lack of authority to bind, provision of own-account services, procurement scope, and group hub responsibilities, which can be crucial in the assessment. Nevertheless, labels alone are insufficient; the actual nature of the service must be thoroughly examined.

Cross-Border GST Classification Needs One Consistent Rule

Dow Chemical emphasises a broader message for GST professionals: intermediary classification should not be exploited as a revenue tool to deny exports or tax imports differently. The legal definition has clear boundaries, and the exclusion for own-account supplies must be observed. For businesses, this judgment highlights the importance of drafting detailed inter-company service agreements. Such agreements should explicitly outline the scope of services, the service provider's capacity, the authority to bind the recipient, how consideration is calculated, and whether the provider is offering its own services or merely arranging for a third-party supply. For regulators, the case serves as a reminder that classifying an intermediary requires careful legal and factual analysis. Simply involving three parties, engaging with suppliers, or providing procurement assistance does not automatically qualify as an intermediary; the actual nature of the service must be thoroughly understood.

Own-Account Services Cannot Be Forced into the Intermediary Box

The GSTAT dismissed the appeals and upheld the refund rejection orders because Dow Europe was found to be providing core procurement services on its own account, not merely arranging supplies as an intermediary. At the same time, the Tribunal clarified that a refund claim cannot be rejected merely as an afterthought where tax was paid under a mistaken understanding of law. The larger takeaway is clear: in cross-border GST arrangements, substance must prevail over labels, and the intermediary test must be applied consistently and with discipline.