Nature of GST payable on Intermediary service

by | May 11, 2022 | Outlook | 0 comments

This update intends to discuss vexed issue of nature of GST on Intermediary services viz. IGST or CGST and SGST for services provided to overseas clients.

  • Under the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’), Intermediary is a person who arranges or facilitates supply between two or more persons. As place of supply of Intermediary services is within India, GST is payable when such services are provided to overseas clients.
  • There are two views on nature of GST payable in such cases i.e. CGST and SGST (since location of supplier and place of supply are in same State) or IGST (since service recipient is outside India). The Authorities for Advance Rulings are taking inconsistent view and pronouncing contrary rulings. Further, FAQ issued by CBIC for Banking, Insurance and Stock Brokers Sector clarified that CGST and SGST is leviable.
  • Section 8(2) begins with ‘subject to provisions of Section 12’ and provides that if place of supply and location of supplier are in same State, such supply is an intra-state supply. Basis judicial meanings, ‘subject to’ means making something subordinate to or conditional on another. ‘Subject to’ limits a provision and can be used in an overriding manner or for prescribing condition. Thus, Section 8(2) will only cover cases situations governed by Section 12 i.e. where both supplier and recipient are located in India. Hence, where either supplier or recipient is outside India (situations covered under Section 13), Section 12 will not apply.
  • In the case of Mohit Minerals Private Limited v. UOI, 2020-VIL-36-GUJ, the Gujarat High Court held that since Section 7(3) is made subject to Section 12, it cannot apply to cases covered by Section 13.
  • Basis above, nature of GST on Intermediary services is not governed by Section 8(2). Hence, this will be covered under residuary provision i.e. Section 7(5)(c) wherein it will be treated as inter-state supply. Accordingly, IGST is leviable on such supplies.

Implications of payment of incorrect GST           

  • Section 77 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and Section 19 of the IGST Act provide that no interest is payable if incorrect GST (CGST and SGST or IGST) was paid and subsequently, it is held that different GST was payable (IGST or CGST and SGST). Further, such wrong GST shall be refunded to taxpayer on payment of correct GST.
  • Importantly, time limit to apply for refund will commence from date of payment of correct GST.

NITYA Comments: Above rationale will equally apply to all cases where service recipient is located outside India and transaction does not qualify as export of service (e.g. services in relation to immovable property, performance based services etc).

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