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The Applicant had been engaged as a non-exclusive consultant for a Singapore Company for the sale of their products to certain refineries in India. The Applicant claimed to provide only marketing consultancy service in India on behalf of the foreign company and their billing is directly done to the foreign company in foreign currency and paid by inward remittance. Further, the Applicant claimed to not have any agreement with the Indian clients for rendering or facilitating any sale / purchase.
In view of the above, the Applicant had filed an application before the MP AAR to ascertain whether such marketing and consulting service are classifiable as ‘export of service’ or not. The AAR had held that the above-mentioned service was in fact classifiable as ‘intermediary service’ and therefore chargeable to IGST. Aggrieved, the Applicant had preferred an Appeal before the MP AAAR praying for remanding the matter back to the AAR to ascertain the question in light of a recent judgement by the Bangalore CESTAT in IBM India Private Limited [2020 (34) GSTL 436], wherein it had been inter alia held that marketing service for a foreign parent Company is an export of service. Accordingly, the matter had been remanded back.
Upon reconsideration of the question, the MP AAR observed that the judgement relied upon pertained to the pre-GST era, and therefore, is not applicable to Intermediary Service under the IGST Act. It was further observed that in the instant case, the Applicant had been providing marketing services to the Foreign Company in the capacity of an ‘Intermediary’. Therefore, it was ruled that the Applicant is liable to pay IGST as an intermediary service provider.
DKV Enterprises Private Limited [AAR No. 02/AP/GST/2021 dated 11.01.2021]
The chargeability of tax on supply of intermediary services has perpetually been litigative right from the Service Tax era. It is generally understood that where a taxable person in India facilitates transactions between two or more persons, such a person would be classified as an ‘intermediary’. Further, it is important to analyse the actual role and functions as the intermediary is not supposed to provide any services of his own account.
However, there is another school of thought, which believes that where the location of the recipient of service provided by an intermediary is outside India, treating the place of supply in India basis the location of supplier, by virtue of a deeming fiction, is contrary to the scheme of GST law. Therefore, a question arises as to whether such provision is arbitrary and unconstitutional. In this regard, a division bench of the Bombay HC in the case of Dharmendra M Jani [2021-TIOL-1326-HC-MUM-GST] passed a judgment, resulting in a deadlock with Hon’ble judges taking contradictory view. While one judge held the intermediary service provision to be unconstitutional, the other has upheld its constitutional validity. The said matter has now been referred to the Chief justice of the Bombay HC on the administrative side for his decision.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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