GST: Gist of recent clarifications- Part I

• Clarification on doubts related to scope of “Intermediary”–

The concept of intermediary services requires some basic prerequisites:

a) Minimum Of Three Parties: This arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. An intermediary essentially “arranges or facilitates” another supply (the “main supply”) between two or more other persons and, does not himself provide the main supply.

b) Two distinct supplies: There are two distinct supplies in case of provision of intermediary services;
(1) Main supply, between the two principals, which can be a supply of goods or services or securities;
(2) Ancillary supply, which is the service of facilitating or arranging the main supply between the two principals. This ancillary supply is supply of intermediary service and is clearly identifiable and distinguished from the main supply.
A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service.

c) Intermediary service provider to have the character of an agent, broker or any other similar person: The role of intermediary is only supportive, it must arrange or facilitate some other supply, which is the main supply, and does not himself provides the main supply.

d) Does not include a person who supplies such goods or services or both or securities on his own account: It implies that in cases wherein the person supplies the main supply, either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of intermediary”.

e) Sub-contracting for a service is not an intermediary service: The supplier of main service may decide to outsource the supply of the main service, either fully or partly, to one or more sub-contractors. Such sub-contractor provides the main supply, either fully or a part thereof, and does not merely arrange or facilitate the main supply between the principal supplier and his customers, and therefore, clearly is not an intermediary.

f) The specific provision of place of supply of ‘intermediary services’ under section 13 of the IGST Act shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India.