GST rationalisation brings relief for GCCs and IT/ITES, with clarity on place of supply of intermediary services

The recent GST reforms has included a long-standing demand of the export-oriented services sector, such as Global Capabilities Centres, IT/ITES (Information Technology Enabled Services) and consulting firms in India over how place of supply of intermediary services is seen from a taxation standpoint.

The Government, on Wednesday, clarified in a statement, “the Council recommended omission of Clause (b) of Section 13(8) of IGST Act 2017. Accordingly, after the said law amendment, the place of supply for “intermediary services” will be determined as per the default provision under Section 13(2) of the IGST Act, 2017 i.e. the location of the recipient of such services. This will help Indian exporters of such services to claim export benefits.”

The contentious Clause (b) of Section 13(8) of IGST Act 2017 which had led to many taxes litigations, denied exports-oriented intermediary services companies to be considered for export status and input tax credits benefits because of its location base in India, even though the services they rendered were outside of India. For instance, the GCCs or MNCs that render services to entities outside of India or consulting firms that are working in India while servicing foreign clients. 

While export services enjoyed no GST liability subject to conditions and were eligible for input tax credit refunds, the intermediary companies on the other hand even though rendered services where the recipient was a foreign entity, because of the provision on the location of the supplier being in India were liable to pay 18% GST on those services upon determination by tax authorities. This has led to disputes at various courts across India where companies were contesting the validity of the provision.

Technology industry body NASSCOM welcomed the move and said the decisions would benefit IT enabled services by easing compliance, releasing working capital and reducing disputes.  In a statement NASSCOM said, “For IT-ITES, the Council recommended omitting Section 13(8)(b) of the IGST Act so the place of supply for intermediary services follows the customer’s location. This restores export status and refund eligibility for services delivered from India and aligns the regime with international practice, removing the misclassification risk. This has been a major issue for disputes, litigation and denial of refund of input credit for our industry, especially IT enabled services.”

With the GST Appellate Tribunal expected to go live and be fully functional by the end of the year, NASSCOM also expects aid in speedy resolution of tax disputes and help in a greater ease of doing business.