Export of service

[Kaustubh Karandikar]

PQR, is based in the USA and XYZ is based in India.

XYZ shall market and promote the Products of PQR in the territory of India as well as outside India., as authorized by PQR.

Scope of the above marketing and promotion is as given below:

For marketing and promotion of the Products within and outside India.

For disseminating information about products, payments and booking conditions and terms of trade.

For performing collections services, as may be required, for PQR sales in the territory.

PQR shall annually pay an aggregate fee equal to 115% of Operating Costs of XYZ.

Is XYZ liable to pay GST on this transaction?

[Amit Agrawal]

What is constitutes 'intermediary' services - as defined u/s 2 (13) of IGST Act, 2017 - is controversial and open to different interpretation.

Keeping aside above controversy for this post of mine, let me share my views about implications under GST if subject services, provided by XYZ, are held as 'intermediary' services as defined u/s 2 (13) of IGST Act, 2017. And same is as follows:

A. As condition u/s 2 (6) (iii) of the IGST Act, 2017 is not fulfilled, same cannot be called as 'Export of Services'.

B. Said services are neither inter-state supply u/s 7 nor intra-state supply u/s 8 of the IGST Act, 2017 when service-receiver (i.e. PQR) is located outside India. And any interpretation to make it as inter-state supply u/s 7 will in-turn make such provision unconstitutional to that extent.

C. In my humble view, subject services are not taxable under current GST (i.e. ifsubject services, provided by XYZ, are held as 'intermediary' services as defined u/s 2 (13) of IGST Act, 2017).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Kaustubh Karandikar]

Respected Amit ji thanks for your kind advice. My views on the same are given herein below:

The transaction fits in to the definition of ‘Intermediary Services’.

As per Section 13(8)(b) of IGST Act, 2017, the place of supply in case of ‘Intermediary Services’ shall be the location of the supplier of services.

Since in the given transaction, location of the supplier of services is in India, it will not be treated as export of service and therefore, will be liable to pay GST.

Sir, your kind views please

[Amit Agrawal]

Dear Shri Kaustubh Karandikar Ji,

As explained in my earlier post, I hold a view that subject services are not taxable under current GST, if subject services so provided by XYZ, are held as 'intermediary' services as defined u/s 2 (13) of IGST Act, 2017). Hence, XYZ is not liable to pay any gst there-against.

This is because, in my view, such services are neither inter-state supply u/s 7 nor intra-state supply u/s 8 of the IGST Act, 2017 when service-receiver (i.e. PQR) is located outside India. And any interpretation to make it as inter-state supply u/s 7 will in-turn make such provision unconstitutional to that extent.

You may refer to my article on TMI - published on 29.01.2019 - having subject-line as: A view: Why ‘Intermediary Service provided to recipient located outside India’ cannot fall under ‘Inter-State Supply’ and Why IGST is not leviable there against? And alternatively, why such provision treating it as ‘Inter-State Supply’ will be unconstitutional?

Real question (i.e. ifsubject services, provided by XYZ, are held as 'intermediary' services as defined u/s 2 (13) of IGST Act, 2017 and hence, if same is held as taxable under GST laws) is, to my mind, which tax XYZ should pay (whether CGST & SGST or IGST) thereagainst?

Ultimately, all these issues are very complex in nature which are open for different interpretations to my mind. And various question/s of law involved here, will be eventually settled - one way or other - by Supreme Court of India.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Link to above said article:

https://www.taxtmi.com/article/detailed?id=8346

[Kaustubh Karandikar]

Respected Amit ji

Your article is an eye opener and really a food for thought. Thanks for sharing.

AI Summary

Place of supply rules: intermediary services by an Indian agent to a foreign principal may be treated as taxable under GST.
The core dispute is whether fees paid by a foreign principal to an India based agent for marketing, promotion and collection services qualify as intermediary services and, if so, whether Section 13(8)(b) - fixing place of supply at the supplier's location in India - renders the transaction non export and taxable under GST, versus the opposing view that such services fall outside inter state and intra state supply and are not taxable under current GST law.