GST UPDATE NO. 71ST ON CLARIFICATION ON INTERMEDIARY SERVICES

Recently CBIC issued the circular no. 159/15/2021-GST DATED 20th September, 2021 giving the clarification on interpretation of the scope of “intermediary services” to ensure the uniformity in implementation of GST law. The concept of Intermediary has been borrowed from Service Tax and has been defined sec 2(13) of CGST Act, 2017 as “Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.” Primary requirements for a service to be considered as an intermediary service are as follows: 1. Minimum there must be 3 parties. Two of them involved in supply of goods and services and third one in arranging or facilitating the main supply. Therefore, the activities between 2 parties cannot be considered as supply of intermediary services. 2. There are always 2 supplies involved, one is main supply and another is ancillary supply. Ancillary supply is supply of intermediary services which is clearly distinguishable from the main supply. 3. The definition of intermediary is not inclusive definition as it uses the word “means” so the definition cannot be expanded. The role of Intermediary services is only supportive role to the main services. 4. Intermediary services does not include a person who supply such goods or services on his own behalf as it is clearly given in the above definition. 5. An important exclusion from intermediary service is sub- letting or sub- contracting. In case, supplier of main service sublet/sub contract the main services, then it will not be part of intermediary services. It will be considered as principal to principal supply. We can take example of intermediary services: Mr. A is a manufacturer and supplier of a machine. Mr. C helps Mr. A in selling the machine by identifying client Mr. B who wants to purchase this machine and helps in finalizing the contract of supply of machine by A to B. C charges A for his services of locating B and helping in finalizing the sale of machine between A and B, for which C invoices A and is paid by A for the same. While A and B are involved in the main supply of the machinery, C is facilitating the supply of machine between A and B. In this arrangement, C is providing the ancillary supply of arranging or facilitating the ‘main supply’ of machinery between A and B and therefore, C is an intermediary and is providing intermediary service to A. In nutshell, intermediary is person who facilitates supply of goods or services but does not himself supply any goods or services. If a person is acting as sub-contractor, then also, he is not to be considered as intermediary.

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GST UPDATE NO. 71ST ON CLARIFICATION ON INTERMEDIARY SERVICES

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